The minutes from the latest Federal Open Market Committee meeting released Wednesday reveal increased uncertainty about the swift decline of inflation toward the 2% target, with the majority of board members indicating the need to keep restrictive interest rates for an extended period.

Participants observed that while inflation eased over the last year, "recent data had not increased their confidence in progress toward 2%," suggesting that "the disinflation process would likely take longer than previously thought."

Although monetary policy was viewed as restrictive, many participants expressed uncertainty about the extent of its restrictiveness. They attributed this uncertainty to the possibility that high interest rates might be having less impact than in the past.

In the May press conference, Chair Jerome Powell described a rate hike as "unlikely." Yet the minutes show that "various participants" expressed a willingness to tighten policy further if inflation risks materialize in a way that would justify such an action.

Almost all participants supported the decision to begin reducing the pace of the central bank's securities holdings sales; however, a few would have preferred to continue at the current pace.

Regarding the economic outlook, the Fed staff's economic projection was similar to the March outlook but noted that deteriorating household financial positions, especially for lower-income households, might prove to be a bigger drag on activity than anticipated.

The minutes reiterated the need to maintain a data-dependent policy going forward.

Market Reactions

U.S. short-term interest-rate futures remained largely unchanged after the FOMC minutes, with traders still assigning a 61% probability to a September start for Fed rate cuts.

Treasury yields saw a marginal uptick. Yields on a two-year Treasury note inched to 4.88%, eyeing the highest close since May 3. Long-dated 30-year Treasury yields remained flat.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (UUP  ), slightly strengthened against peers, up 0.2%.

Stocks held losses for the session as risk sentiment turned more cautious. The SPDR S&P 500 ETF Trust (SPY  ) was down 0.4% at 2:10 p.m. EDT, while the tech-heavy Nasdaq 100, as monitored through the Invesco QQQ Trust (QQQ  ) was 0.2% lower.

Small caps underperformed large-cap stocks, with the iShares Russell 2000 ETF (IWM  ) down 0.5%.