MUFG Research discusses its reaction to yesterday's FOMC minutes from the May policy meeting.
"The minutes revealed that many Fed policymakers believed that “expediting the removal of policy accommodation” through two more 50bps hikes in both June and July would “leave it well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments”. It signals that the Fed could be open to a pause at the September meeting as suggested by Atlanta Fed President Bostic. However, it would depend heavily on the performance of the US economy and financial conditions," MUFG notes.
"For the Fed to slow/pause rate hikes heading into the autumn it will likely require some combination of much weaker economic growth, further weakness in equity markets and/or a faster cooling of inflation pressures. It suggests that market participants could be getting a little ahead of themselves in beginning to anticipate a dovish policy pivot from the Fed at the current juncture. we are not yet convinced that the recent pullback for the US dollar is the start of more sustained moved lower”," MUFG adds.