Fed open to hiking interest rates in June
Washington (May 18) Most of the Federal Reserve’s interest-rate setting committee are ready to lift interest rates in June if the economy shows more life, minutes released Wednesday show.
The minutes of the April 26-27 Federal Open Market Committee meeting appear to echo concerns articulated in recent speeches from Federal Reserve officials, namely that the market is too complacent over the interest-rate-hike desires at the central bank.
“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2% objective, then it likely would be appropriate for the Committee to increase the target range for the federal-funds rate in June,” the minutes read.
U.S. stocks SPX, -0.26% DJIA, -0.30% COMP, +0.20% turned negative, and Treasury yields TMUBMUSD02Y, +6.82% spiked after the publication of the minutes.
To be sure, there is debate about whether the data will be available to say that—“several” policy makers were concerned that might not be apparent, the minutes say.
Some Fed officials said financial markets might not be expecting a rate hike in June and emphasized the importance of communicating clearly.
Divergence between Fed projected path of rates and market expectations before the release of the minutes
Over the last two weeks, several Fed officials have said that June was a possibility for a rate hike.
“They are trying to make it abundantly clear that the upcoming meeting is “live,” said Thomas Simons, economist at Jefferies.
“This does not pre-commit the FOMC to a June rate hike,” he added.
The Fed will next meet on June 14-15. Fed Chairwoman Janet Yellen is scheduled to speak twice before the meeting. A speech in Philadelphia on June 6 could be key.
The Fed raised interest rates in December for the first time in almost a decade to a range of 0.25% to 0.5%. Global economic weakness, financial-market turmoil, and doubts about the health of the U.S. economy have kept it from moving again.
Kevin Cummins, senior U.S. economist at RBS, said the market reaction to the minutes will be an important factor in any decision to move in June.
“If market takes it in stride then I think it does increase the chance the fed would act in June or perhaps July,” he said.
One factor that could delay the Fed is the upcoming British referendum on membership in the European Union that will take place on June 23.
Some Fed officials noted that global financial markets could be sensitive to the Brexit vote. Also mentions was “unanticipated developments associated with China’s management of its exchange rate.”
Source:MarketWatch
