FOMC Minutes Show Mixed Signals

Uncertainty is rife amongst market participants who could send Wall Street on a rollercoaster ride as investors digest the latest economic data to ascertain how the FED will evolve its stance in a heated battle against inflation while considering the recent banking liquidity crisis.

While market participants were left to digest the latest U.S. Consumer Price Inflation (CPI) data, which temporarily saw U.S. equities trend higher, Wednesday’s minutes from the FED’s March policy meeting “revealed concern” among Federal Reserve officials concerning the regional banking turmoil. Despite the FOMC minutes following a cooler-than-expected inflation report for March, U.S. equities closed lower. The S&P 500, Dow Jones Industrial Average, and the NASDAQ Composite Index closed in “negative territory” amidst fears of a mild recession.

Despite headline inflation ticking to 5% for March, significantly below consensus estimates, core CPI, which excludes “volatile food and energy items,” remains stubbornly high, “well above” the FED’s much-desired 2% target rate, coming in at 5.6% for March. While sticky core inflation has increased the likelihood of another quarter percentage rate hike in May, the recent banking turmoil has significantly “scaled back expectations for interest-rate hikes this year.” The mixed sentiment has investors overreacting to “any positive or negative hint” of a rate hike which has seen uncertainty flood Wall Street. The FOMC minutes of the latest FED March meeting showed market participants that the decision to raise rates by 25 basis points last time out was “unanimous among all 18 officials but reflected a middle ground.”

Although Federal Reserve officials have taken the stance that the recent banking turmoil was limited to a few banks with poor risk-management practices, officials are projecting a “mild recession.”