Instant View: FOMC members rallied around June’s 75 bp hike

NEW YORK (Reuters) – A deteriorating inflation situation and concern about lost faith in the Federal Reserve’s power to make it better prompted U.S. central bank officials to rally around an outsized interest rate increase and a firm restatement of its intent to get prices under control, minutes of the June 14-15 policy meeting showed.

Based on data released in the days prior to the session, “participants concurred … that the near-term inflation outlook had deteriorated since the time of the May meeting,” the minutes stated, justifying the 0.75-percentage-point increase, the first such since 1994, and a move to “restrictive” monetary policy.

Participants also judged that an increase of 50 or 75 basis points would likely be appropriate at the policy meeting later this month, a show of unanimity that has erased typical fault lines between inflation “hawks” and “doves.”

STORY:

MARKET REACTION:

STOCKS: The S&P 500 turned 0.61% higher

BONDS: The yield on the 10-year Treasury note ticked up to 2.9096%. The 2-year note yield rose to 2.9466%

DOLLAR: The US dollar index added to a gain, up 0.52%

COMMENTS:

JIM PAULSEN, CHIEF INVESTMENT STRATEGIST, LEUTHOLD GROUP, MINNEAPOLIS

    “They talked about 50 to 75 (basis points). If that’s where they were at last month I’ve got to believe they’re at 50 now. There really has been a lot of change since they last met.”

    “Commodity prices from industrial to agriculture to energy have collapsed. Breakeven rates across the yield curve have fallen. Yeah. And not only that, but bond yields have fallen. So there’s a strong message coming from the economy and the bond market and the commodity market that this seems to be working and maybe the Fed would want to think about slowing down.”

PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA

“I’m thinking (the Fed is) sticking to the game plan, but they’re cognizant of the softening economy and the impact higher interest rates and inflation are having on consumers.”

“They cited some signs of a slowdown. They’re aware that growth may be slowing. It’s steady as she goes until we see another month or two of data.”

“Markets haven’t really done much of anything. We’re pretty much flat for the day. People are looking for things that have typically done well in a slowdown.”

(Compiled by the U.S. Finance & Markets Breaking News team)