Chances appear slim for an interest rate hike in June after the minutes from the recent Federal Reserve interest rate meeting which was published on Wednesday.
The summary of the meeting that was held on April 29-30 showed that there were only a “few” Federal Reserve officials that thought that the economy would indicate sufficient strength to make a move in the next six weeks by the central bank seem more reasonable.
However, the minutes showed most of the members that attended the discussions thought that the data available in June would most likely not confirm sufficiently that the conditions required for increasing the federal funds rate target range had been satisfied. Interestingly though, the possibility of interest rate hikes by next month were not completely ruled out.
The minutes showed that in April officials had increased uncertainty around the economic outlook in the country. Added to this, there were no solid reasons to justify the weakness in consumer spending.
After the minutes were released, U.S. stocks closed lower, although during the trading session, they were still barely unchanged which marked a clear indication that the market had already anticipated that the Fed was not likely to hike rates next month.
The officials from the Fed will again meet on June 16-17. Since the Great Recession, this will be the first “live” meeting where a hike in interest rates could happen. The Fed has managed to guide the market over the last six years not to expect an increase in rates at any of its upcoming meetings.
If the labor market showed continued improvement and if there was justifiable confidence that inflation was again moving towards the 2% annual target rate, Fed officials say that this would make conditions ideal for rate increases.
The minutes released on Wednesday indicated that “most” of the Fed officials believe that the drastic slowdown in 1st quarter growth was transitory and in the 2nd quarter, moderate rebounds would resume, also expecting that inflation would rise. This suggests that some Fed officials still see a rate increase coming later this year sometime.
There were also just a “few” in the U.S. central bank that questioned if the Fed was in fact providing enough economic stimulus at the current time while they also cautioned against hiking rates in the near future.
Officials from the Fed also discussed possibilities of negative reactions in the bond market to monetary policy tightening. Some officials have indicated that careful communication from the U.S. central bank could in turn minimize this risk.