by Macroview Although the probability of a June/July rate hike by the Fed has increased, the minutes also highlighted downside risks still facing the US economy Read full report here The minutes of the April Federal Open Market Committee meeting published on 18 May surprised by their hawkish tone. The key phrase that unsettled observers was that should conditions continue to improve, “it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June”. With the economy giving signs of a noticeable pick-up in growth in Q2 and overall labour market conditions continuing to improve, at least by Fed standards, these minutes suggest a rate hike in June is now clearly more firmly on the table. However, a rate hike in June is far from a done deal. The minutes mention that “several participants were concerned that the incoming information might not provide sufficiently clear signals to determine by mid-June whether an increase in the target range for the federal funds rate would be warranted.” Moreover, the minutes also highlighted once more important downside risks associated with global economic and financial potential developments, the Brexit referendum and “the management of China’s exchange rate”. Many FOMC participants also voiced concerns “that the recent slowdown in domestic spending might persist”.
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Bernard Lambert considers the following as important: Fed policy, FOMC minutes, Hawkish Fed, Macroview, US rate hike
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Although the probability of a June/July rate hike by the Fed has increased, the minutes also highlighted downside risks still facing the US economy
The minutes of the April Federal Open Market Committee meeting published on 18 May surprised by their hawkish tone. The key phrase that unsettled observers was that should conditions continue to improve, “it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June”. With the economy giving signs of a noticeable pick-up in growth in Q2 and overall labour market conditions continuing to improve, at least by Fed standards, these minutes suggest a rate hike in June is now clearly more firmly on the table.
However, a rate hike in June is far from a done deal. The minutes mention that “several participants were concerned that the incoming information might not provide sufficiently clear signals to determine by mid-June whether an increase in the target range for the federal funds rate would be warranted.” Moreover, the minutes also highlighted once more important downside risks associated with global economic and financial potential developments, the Brexit referendum and “the management of China’s exchange rate”. Many FOMC participants also voiced concerns “that the recent slowdown in domestic spending might persist”.
In conclusion, the likelihood has increased of a rate hike in June, or even more probably in July. However, we continue to believe that the most likely scenario is that the FOMC will wait until September before acting. Two upcoming events will be of prime importance to confirm or refute this view: the May employment report on 3 June and a speech by FOMC Chair Janet Yellen on 6 June.