Fed Minutes: June rate hike 'unlikely', says majority
A rate hike in June is 'unlikely', according to minutes published from the last Federal Reserve interest-rate meeting.
A summary of the discussions spanning 29-30 April revealed that only a few officials believed that the economy would demonstrate sufficient resilience to justify a move in six weeks time.
“Most Fed policy members, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes read.
The majority reiterated optimism regarding inflation's move towards its 2% annual rate target, deducing that the first quarter's slowdown in growth was transitory and likely to be succeeded by a rebound in the second quarter. A potential increase of the 2% target was also touched upon in discussion, although no conclusion was reached.
However, a few officials called into question the Fed's provision of economic stimulus and cautioned against any rate hike in the near future, arguing that a tightening of monetary policy could damage the bond market.
"The surprise could lead to sudden and volatile market reactions once the first hike does happen," warned Christian Schultz, senior economist at Berenberg. "We expect the Fed to communicate extensively that it would be very careful with further hikes after the first one to avoid major volatility with a potential real economic impact," he added.
Such doubt was rejected by "most" officials though, who dismissed the idea of issuing a statement warning the market that rates could well be raised in the near term. Instead, the next move would have to be co-ordinated on a meeting-by-meeting basis, they claimed.
The comments follow on from April's uncertainty, which was driven by inexplicably weak consumer spending. Officials have been clear that an interest hike would only happen should the labor market continue to improve.
Fed officials are due to meet again from 16-17 Jun, in what is will be the first “live” meeting since the Great Recession where a rate hike is a possibility. Over the last six years, the Fed has guided the market not to expect such an outcome.
US stocks received a slight uplift from the news, although the session closed largely flat, given that most analyst and investors had predicted the outcome.
"Most economists already expect the Fed to wait until September," said Paul Ashworth, chief US economist at Capital Economics. "The rebound in April payrolls wasn't strong enough to put June back on the table and the weakness in April's retail sales and manufacturing output figures probably made July an unlikely prospect too," he concluded.