TD Securities analysts highlight that April Federal Open Market Committee (FOMC) minutes showed growing support to drop the easing bias, with many participants and several regional presidents favoring a more neutral stance. Subsequent hawkish payrolls and Consumer Price Index (CPI) data reinforce this shift. They expect the FOMC to formalize the change in June and see policymakers as comfortable staying on hold for longer.

Hawkish minutes support higher for longer

"The minutes to the April FOMC showed hawkish momentum for dropping the easing bias, with "many" participants supporting the move. Note that three regional Fed presidents dissented in favor of this, and the remaining support likely comes from regional Fed presidents as well."

"Since the April FOMC meeting, both payrolls and CPI have surprised hawkishly to the upside, adding strength to the argument for a more neutral outlook. We expect the FOMC will make this change in June."

"Participants "generally judged" that the current economic backdrop from the Iran conflict could "necessitate maintaining the current policy stance for longer than previously anticipated.""

"The minutes also noted that a "majority" would support "some policy firming" if inflation proves persistent. However, this would likely require increased inflation risk from the labor market, which we do not expect. A "vast majority" did note that inflation could run above target for longer than expected though, which likely means they are comfortable staying on hold for longer (likely the entire year)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)