“US Federal Reserve Meeting Results – May 2023: Insights and Forecasts”

The results of the US Federal Reserve meeting for last April, issued today, Wednesday, included the following points:

• Data available at the time of the May meeting indicated that real GDP expanded at a modest pace in the first quarter.
• Labor market conditions remained tight in March, as job gains were strong and the unemployment rate was low.
• Consumer price inflation – as measured by the 12-month rate – continued to rise in March.
• Limited data was available on economic activity during the period following the onset of banking sector stress in mid-March, although several recent surveys have indicated that bank credit conditions are tightening.
• Fed members broadly agreed that the pace of further rate increases is uncertain.
• Participants generally agreed that the extent to which additional increases might be appropriate was less certain.
• Several members of the US Federal Reserve emphasized the need to preserve discretion in decisions.
• The economic forecasts prepared by the task force for the US Fed’s May meeting continued to assume that the effects of an expected further tightening in bank credit conditions, amid already difficult financial conditions, would lead to a mild recession starting later this year, followed by a moderate pace.
• Real GDP is expected to slow over the next two quarters before declining slightly in both the fourth quarter of this year and the first quarter of next year.
• Real GDP growth through 2024 and 2025 is projected to be lower than staff estimates of potential output growth.
• The unemployment rate is expected to rise this year, peak next year, and then begin to decline gradually in 2025.
• Participants agreed that inflation is unacceptably high and that it is declining more slowly than they had expected.
• Fed members expect a mild recession later this year, followed by a modest recovery.
• Fed members are divided on supporting further interest rate hikes.
• Most of the Fed members said that if the economy develops according to their expectations, there may be no need for further rate hikes.
• Some participants suggested that further interest increases might be needed.
• Some Fed members stressed that it was critical that policy not signal the possibility of rate cuts later this year or rule out further rate hikes.
• In light of the significant risks to the committee’s objectives regarding both maximum employment and price stability, Fed members generally noted the importance of carefully monitoring incoming information and its implications for the economic outlook.

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