The minutes of the Fed meeting released a strong hawkish signal, officials discussed that the focus has shifted towards raising interest rates.

The latest minutes of the April monetary policy meeting released by the Federal Reserve show that, against the backdrop of energy price increases due to Middle East conflicts and renewed inflation pressures, there is a clear shift towards a more hawkish stance within the Federal Reserve. Most officials believe that the current high interest rate policy may need to be maintained for a longer period than previously expected, and if inflation remains above the 2% target, further rate hikes may even be necessary in the future. Market observers point out that this is one of the most hawkish meeting minutes from the Federal Reserve in recent years, indicating that Jerome Powell, who is set to become the next Federal Reserve Chair, will be facing a decision-making team that is leaning towards maintaining high rates for a longer period. The focus of discussions has shifted from "when to cut rates" to "whether to raise rates". The minutes show that most officials believe that sustained high inflation and the uncertainty brought by Middle East conflicts may require the current policy stance to be maintained for a longer period. Many officials noted that if inflation continues to be significantly above 2%, further monetary tightening "may become appropriate". As a result, "many" officials even hope to remove language from the policy statement hinting at potential future rate cuts. The minutes emphasize that the future policy path will depend on the performance of data at each meeting, rather than a predetermined direction. Nick Timiraos, known as the "Federal Reserve microphone," stated that discussions within the Federal Reserve regarding "when to cut rates" have almost come to an end in the past two years, and policymakers are now seriously considering the opposite direction of whether to raise rates again. This indicates that the hawkish forces within the Federal Reserve are rapidly expanding. Analyst Greg Michalowski of the U.S. financial website InvestingLive pointed out that mentioning "many officials" in the minutes who support removing accommodative language suggests that the number of officials hoping to shift to a more hawkish stance may be more than the three previously indicated in the vote. Middle East tensions and energy prices are the biggest inflation risks The minutes show that almost all participants believe that the Middle East conflict may last a long time, and even if the situation eases, oil and commodity prices may remain high for a longer period. Officials are concerned that high oil prices, supply chain disruptions, and businesses passing on higher costs to consumers could continue to push up inflation in the United States. Participants expect that energy prices will continue to pose upward pressure on overall inflation in the short term. While most officials believe that the impact of tariffs on core goods inflation will gradually weaken this year, some officials warn that if tariffs increase further in the future, inflation risks may continue to rise. The minutes also mentioned that in the context of persistently high inflation above 2% in recent years, high inflation may have already begun to affect corporate wage and pricing behavior, making inflation more "sticky." The vast majority of officials believe that the process of inflation falling back to 2% may take longer than previously expected. U.S. economy remains resilient as labor market stabilizes Despite increased inflation pressures, Federal Reserve staff have a more optimistic outlook on the economic outlook compared to March. The minutes show that as the impact of the federal government shutdown gradually fades, the actual GDP growth rate in the first quarter of the United States has increased. Import of high-tech goods has grown significantly, which was a key factor dragging down net exports in the first quarter. Staff expect that real GDP growth in the United States will slightly exceed potential growth in the coming years, and the unemployment rate will remain near its long-term level over the next two years. At the same time, recent performance in the labor market has strengthened the Federal Reserve's confidence in maintaining high rates. The minutes point out that officials at the April meeting received more positive employment data from March, with most believing that the labor market is stabilizing. The subsequent release of strong nonfarm payroll data for April further reinforced this assessment. Market analysts point out that compared to concerns about the fragility of the labor market at the March meeting, the Federal Reserve is now clearly more concerned about the "resilience of inflation." Federal Reserve warns of continued fragility of the financial system In addition to inflation issues, the Federal Reserve also issued a warning in the minutes about risks to the U.S. financial system. Officials believe that the overall fragility of the U.S. financial system is still a concern. Asset valuation pressures remain elevated, and real estate valuation indicators are close to historical highs. The minutes specifically mentioned that the private credit market in the U.S. has grown rapidly in recent years. Some private credit products experienced capital outflows in the first quarter of this year, partly due to market concerns that AI could impact the business models of certain industries (especially the software industry) and affect credit quality. In addition, the Federal Reserve also pointed out that leverage trading by hedge funds in the U.S. Treasury market is still high, and leverage ratios for life insurance companies remain elevated. However, compared to these risks, the overall capital levels of the U.S. banking system remain above historical averages. The market is starting to bet on "the next step being a rate hike" Following the release of the minutes, the market's expectations for the future rate path have shifted further toward hawkishness. The interest rate futures market has begun to bet that the Federal Reserve's next move may not be a rate cut, but a rate hike. Analysts believe that the situation in the Middle East, high oil prices, and the resilience of the U.S. economy are reshaping the logic of Federal Reserve policy. And the new chair to succeed Powell, President Lael Brainard, will also take over a Federal Reserve with a clearly more hawkish stance.