END OF DAY REPORT MAY 24th EQUITIES, FUTURES & OPTIONS

HIGHLIGHTS

FOMC Minutes:
 Shows officials are split on support for more hikes, Participants generally agreed extent to which further interest rate hikes may be appropriate had become less certain, many focused on the need to retain optionality after the May meeting 
Policy Outlook Participants generally expressed uncertainty about how much more policy tightening may be appropriate. 
Several participants said if economy evolved along lines of their outlooks, further policy firming might not be needed. Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings

 Some participants stressed it was 'crucial' that policy statement not signal likelihood of rate cuts this year or rule out further hikes. 
Participants generally noted the importance of closely monitoring incoming information and its implications for the economic outlook. 
Participants emphasized the importance of communicating to the public the data-dependent approach.
Banking Participants judged banking sector stress would likely weigh on economic activity but to an uncertain extent.
 Participants noted that risks associated with the recent banking stress had led them to raise their already high assessment of uncertainty around their economic outlooks.

 Debt limit: Some participants noted concerns federal debt limit may not be raised in timely manner, threatening significant financial system disruptions, tighter financial conditions. 

Economic Activity Participants agreed that inflation was unacceptably high and declining slower than they had expected. Upside risks to the inflation outlook remained a key factor shaping the policy outlook. 

A few participants noted that they also saw some downside risks to inflation. 

Staff Economic Outlook Continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery.

Fed's Waller (voter, hawk) says whether Fed should hike or skip at the June meeting will depend on how the data comes in over the next three weeks; 
watching labour market data, particularly wages information, and additional inflation numbers in that time If one is sufficiently worried about downside risk from credit conditions, then prudent risk management may suggest skipping a hike in June but leaning toward a July hike depending on inflation data and if banking conditions haven't tightened excessively.

 Needs to maintain flexibility on best policy decision for June meeting. Not expecting data in next couple of months to make it clear terminal interest rate has been reached. Does not support stopping rate hikes unless there is clear evidence inflation is moving down to 2% target. More loosening of "very tight" labour market needs to be seen to help take the heat off high inflation.

 Concerned about lack of progress on inflation. Concerned inflation won't come down much unless growth of average hourly wages nears 3% (at 4.4% in April). April PCE inflation and May CPI data will be 'critical'. 

There is higher-than-usual uncertainty about credit conditions. Not clear to him how credit tightening compares to interest rate hikes despite other people's efforts. Fighting inflation continues to be his priority.