FOMC Minutes Show June Rate Hike Unlikely
Washington (May 20) The minutes of the April Federal Open Market Committee (FOMC) meeting showed that many committee members felt it was unlikely economic data would support a June rate hike.
According to some economists, there were no major surprises in the minutes as markets have almost completely ruled out a rate hike in June, pushing back expectations to September.
The minutes show that the committee remains firmly focused on incoming economic data to determine when the central bank will start raising the Fed funds rate.
“Participants continued to judge that it would be appropriate to raise the target range for the Federal funds rate when they had seen further improvement in the labor market and were reasonably confident that inflation would move back to its 2% objective over the medium term,” the minutes said.
Although the FOMC was slightly more pessimistic on the economy in its April monetary policy statement, the minutes show that the committee is still relatively optimistic. The minutes said that the committee recognized some downside risk to economic growth.
“However, most participants continued to see the risks to the outlook for economic growth and the labor market as nearly balanced,” the minutes said.
The committee also continues to monitor developments in the U.S. dollar, and expect that a stronger greenback will continue to restrain export growth and in turn economic growth.
“It was suggested that one element underpinning the strength of the U.S. dollar was the increasing prevalence of negative interest rates on sovereign debt in some key European economies,” the minutes said.
Some committee members also noted that a greater slowdown of the Chinese economy and continued financial problems in Greece could pose a risk to the U.S. economy.
On the inflation outlook, the minutes said that the committee continues to expect to see weaker inflation as a result of lower energy prices. However the members still see stronger price pressures in the long-term.
“Although participants expected that inflation would continue, in the near term, to be below the Committee’s 2 percent longer-run objective, energy prices were no longer declining and most participants continued to expect that inflation would move up toward the Commit-tee’s 2 percent objective over the medium term as the effects of the transitory factors waned and conditions in the labor market and the overall economy improved further,” the minutes said.
Eric Green, head of U.S. rates and economic research at TD Securities, said the prevailing bias in the minutes is for the committee to tighten rates as soon as possible and means more emphasis will be put on incoming economic data.
“How the data unfolds over coming weeks will go a long way to shaping the bias that emerges from the June FOMC meeting. For now, however, the April minutes didn’t telegraph any impending change in the bias to raise rates twice in 2015. A majority expects growth to resume, but a number of officials are not tone deaf to the risks that headwinds to growth may persist for some time,” he said. “The minutes show a Fed ready to pull the trigger if given the chance…”
Source: KitcoNews
