U.S. stock losses mounted Thursday (July 20) after the minutes of the latest Federal Reserve meeting on interest rates showed “significant uncertainty” among members about the appropriate level of interest rates going forward.
CBS MarketWatch reported that the Federal Open Market Committee (FOMC), the Fed’s interest-rate setting body, intended in its June 29 policy statement to signal to the markets that rate hikes at future meetings were no longer “foreordained,” according to a summary of their closed-door deliberations released Thursday. The FOMC minutes reveal that there was “significant uncertainty” among members about the appropriate level of interest rates going forward.
One FOMC member called the decision to raise the target Fed funds rate in June to 5.25% “a close call.” The minutes reveal a lengthy debate among FOMC members about inflation. Most, but not all, believed that inflation would edge lower.
“We had a bit too much too soon yesterday,” said Michael Metz, chief investment strategist at Oppenheimer & Co. “After a little reflection, Bernanke didn’t say too much.”
On Wednesday, stocks surged, with the Dow Jones Industrial Average adding more than 200 points on congressional testimony from the Federal Reserve chairman that suggested the long-term inflation outlook was improving, raising hopes of an end to interest-rate increases.
For Metz, Bernanke simply reiterated that the future course of U.S. interest rates remained dependent on economic data. “I think the market was positioned for very, very bad news from the Fed. We didn’t get it and we had the huge relief rally and now we’re back where we were before.”
Merrill Lynch, in a note to clients, said the market needs “a reality check,” as the futures market is still pricing in a greater chance than not of a rate increase at the Fed’s August 8 meeting. “The rate cycle may not be over even if we think it probably is.”
Bernanke is back on Capitol Hill for a second day of testimony. He told Congress that he expects the wages of American workers, adjusted for inflation, to rise in coming quarters, and said the increase is not necessarily inflationary.