According to minutes from May 2-3 meeting of FOMC, there’s a cloud of uncertainty over the prospect of future policy tightening. The committee’s participants “generally agreed” that the cumulative effects of monetary policy tightening and the possible impact of further tightening on the economy render the extent of future target range increases “less certain”.

The minutes report, “Participants generally expressed uncertainty about how much more policy tightening may be appropriate.” This theme of uncertainty was echoed throughout the document, with the committee members emphasizing the need to “‘retain optionality” after the meeting.

Moreover, the minutes reveal, “Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.” This implies that should economic conditions continue on their current trajectory, additional policy tightening may not be required, underscoring the tentative stance adopted by the FOMC.

Fed Presidents Thomas Barkin of Richmond and Raphael Bostic of Atlanta shared their perspectives during an event hosted by the Richmond Fed.

Barkin didn’t provide any conclusive hints about the June meeting, stating, “I’m not going to prejudge June. I’d like to be convinced of that and I’m still looking to be convinced of that.”

Bostic emphasized the lag effect of the policy, adding, “Our policy works with a lag. And we’re just at the very beginning of this time when that lag is starting to play out and you’re starting to see tightness emerge. Right now, absent a big change, I think I will be comfortable saying let’s just look and see how things play out.”

Separately, San Francisco Fed President Mary Daly shared a similar sentiment of cautious observation, saying, “I really think, at this point in our tightening cycle, it is prudent to resist the temptation to say what we are going to do for the rest of the year.”

The collective view indicates an element of uncertainty and data-dependency in Fed’s next moves.

St. Louis Fed President James Bullard reiterated the need for more rate hikes to combat persistent inflationary pressures. He stated, “I think we’re going to have to grind higher with the policy rate in order to put enough downward pressure on inflation and to return inflation to target in a timely manner.”

“I’m thinking two more moves this year – exactly where those would be this year I don’t know – but I’ve often advocated sooner rather than later,” he added.

According to Bullard, Fed’s March median forecast, which suggested rates peaking at 5.1%, was predicated on a slowing U.S. economy and rapidly falling inflation. Instead, he noted, the economy has exhibited robust growth and inflation has not been abating as swiftly as hoped.

With this unexpected scenario in play, Bullard cautioned about the risks of inflation not subsiding to lower levels. Referring to the buoyant labor market, he emphasized, “As long as the labor market is so good it is a great time to get this problem behind us and not replay the 1970s.”

In an interview with CNBC, Minneapolis Fed President Neel Kashkari acknowledged the uncertainty surrounding the decision whether to raise rates further in June. He highlighted, “I think right now it’s a close call, either way, versus raising another time in June or skipping. What’s important to me is not signaling that we’re done.”

Kashkari clarified that even if the Federal Reserve opted not to hike rates in June, it wouldn’t signal the end of the current tightening cycle. Instead, it would be a strategic move to gather more information and potentially reinitiate the raise in July.

Considering his tenure on the committee, which spans “seven or eight years”, Kashkari conceded that this period marks the highest degree of uncertainty they’ve faced in terms of comprehending the underlying inflationary dynamics. Consequently, he is placing a greater emphasis on inflation to guide his decisions.

He speculated, “It may be that we need to go north of 6%, let’s see what happens in the underlying services economy.” Yet, Kashkari is mindful of the potential impact of banking stress on inflation rates.

“But if the banking stresses start to bring inflation down for us, then maybe we’re getting closer to being done. I just don’t know right now,” he added.

Minneapolis Fed President Neel Kashkari, in an interview with Wall Street Journal, suggested that Fed could afford to adopt a slower pace in its current policy trajectory, while emphasizing that this should not be construed as the end of their monetary tightening efforts.

Expressing his openness to a slower approach, Kashkari stated, “I’m open to the idea that we can move a little bit more slowly from here,”. However, he strongly disagreed with any sentiment that suggested the Fed’s task was complete. “I would object to any kind of declaration that we’re done,” he clarified.

Kashkari went on to argue that skipping a meeting to gather more data could be a sensible decision. “If the committee chooses to skip a meeting because we want to get more information, I could make the argument why that makes sense,” he explained.

He further distinguished this action from an implied cessation of the Fed’s work, saying, “A skip to get more information is very different in my mind than [saying], ‘Hey, we think we’re done.'”

Fed Chair Jerome Powell said at a conference today, “We’ve come a long way in policy tightening and the stance of policy is restrictive.”

Also, “We face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses.”

The Fed Chair suggested that the central bank now has room to scrutinize the economic data and evolving outlook more closely, and make measured assessments. “Having come this far, we can afford to look at the data and the evolving outlook to make careful assessments,” he added.

Interestingly, Powell emphasized the influence of the banking sector on the current financial landscape. He said, “While the financial stability tools helped to calm conditions in the banking sector, developments there on the other hand are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation.”

“As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain,” Powell concluded.