After the Federal Reserve signaled that interest rates will continue to rise amid ongoing inflation concerns, the stock market received little encouragement to sustain its recovery.
The minutes from the latest Fed meeting didn't reveal much new information, but they did confirm that nothing will prevent officials from keeping rates higher for longer if economic resilience threatens their objectives. Now, while chair Jerome Powell hasn't been pushing back against easier financial conditions, Wednesday's statement suggests they may warrant a "tighter stance."
That perception was reflected in the swap market. Traders have almost completely priced in quarter-point increases at the Fed's next three meetings. The June overnight index contract rate increased to 5.323%, nearly 75 basis points higher than the current effective fed funds rate. With the July contract nearly reaching 5.4%, the market has also priced in a higher eventual peak.
According to the FOMC meeting minutes for the February meeting, a number of officials stated that an "insufficiently restrictive" policy stance could halt recent progress in moderating inflation pressures, implying that they are willing to raise rates above their December forecast of 5.1%. According to the meeting minutes, "almost all" officials agreed it was appropriate to raise interest rates by 25 basis points, while "a few" favored or could have supported a larger 50 basis point hike.