Fed minutes show some division emerging among officials

Investor focus was very much on minutes from the Federal Reserve's February meeting late on Wednesday, which showed some division emerging as a number of officials expressed concern over the recent easing in financial conditions.

The minutes, released at 1900 GMT, showed that "a number" of Fed officials thought easier conditions could require a further tightening of monetary policy.

America’s central bank increased its benchmark rate by 25-basis points to a range of 4.5% to 4.75% at the meeting.

The minutes showed that a "few" officials wanted a 50-basis point rise, with Cleveland Fed president Loretta Mester and St. Louis Fed president James Bullard previously confirmed to be among those.

“We think the Fed has already done enough and needs to wait for the full effect of its actions to work through, so further hikes just increase the risk of a recession which is not needed to bring inflation back to the target,” said Ian Shepherdson at Pantheon Macroeconomics.

“But they clearly will hike in March, and a further increase in May now looks more likely than that.

“Beyond May, though, the path of policy will be determined by the data.”

All officials on the Federal Open Market Committee (FOMC) supported further rate increases, with "several" believing the economic risks were reaching a balance.

However, "a number" of officials said that if interest rates were not high enough to put the brakes on the economy, it could cancel out the Fed’s recent progress on bringing down inflation, leading to longer above-target price rises.

“The FOMC minutes read hawkish to me,” said Titan Asset Management’s chief investment officer John Leiper.

“Further, participants were not privy at that time to the upbeat macro data we’ve seen since, including the bumper January non-farm payroll.

“This will feed the recent higher for longer rate narrative and risk-off price action witnessed over the last week.”

Elsewhere in the minutes, the Fed staff forecast still saw real GDP growth slowing “markedly this year”, and the labour market softening.

A "few" officials were concerned about the effect international stresses could have on the US financial system, and "a number" thought a prolonging of negotiations to raise the federal debt limit could be dangerous for both the financial system and the economy in general.

Reporting by Josh White for Sharecast.com.