(HVU-T) FOMC Minutes Show Support For June Rate Hike
There is a growing divide within the Federal Open Market Committee according to the minutes of the April monetary policy meeting.
The minutes showed that support is growing for the U.S. central bank to raise interest rates as early as June.
“Some participants were concerned that market participants may not have properly assessed the likelihood of an increase in the target range at the June meeting, and they emphasized the importance of communicating clearly over the intermeeting period,” the minutes said.
April’s monetary policy statement showed one dissenter in the meeting as Kansas City Fed president Esther George said that she supported a move at that meeting; however, the statement in April downplayed the hawkish tone of the meeting as reflected in the minutes. The comments in the statement showed that participants thought it would be appropriate to raise rates in June.
“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 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June,” the minutes said.
Along with continued optimism for the U.S. economy, the committee was also less concerned about global growth.
“Participants generally agreed that the risks to the economic outlook posed by global economic and financial developments had receded over the intermeeting period,” the statement said. “Several FOMC participants judged that the risks to the economic outlook were now roughly balanced.”
While there is growing support for the central bank to raise interest rates sooner than expected, the minutes also shows that some members remain reluctant to rock the economic boat.
“[M]any others indicated that they continued to see downside risks to the outlook either because of concerns that the recent slowdown in domestic spending might persist or because of remaining concerns about the global economic and financial outlook,” the minutes said.
Interestingly, the U.K. referendum, which is to take place a week after the June Federal Reserve meeting was a relatively small topic in April.
Although the minutes were more hawkish than markets were expecting, Royce Mendes, senior economist at CIBC, dismissed the risks of a June meeting, saying in a note that there isn’t enough economic evidence to support a hike that soon.
“While they discussed raising rates in June participants may not have enough information to justify a tightening,” he said. “That said, it appears that officials are concerned that the market had completely priced out any chance of a rate hike in June and barely any chance this year.”
Since the release of the minutes, market expectations of a June move have spiked higher. The CME’s 30-day fund futures are now pricing in a 33.8% chance of a move next month, up from 11.3% chance noted a day earlier.
However, the gold market continues to show some modest resilience. Although prices fell more than $10 to a session low of $1,260.50 an ounce, in initial reaction to the minutes, the market currently down slightly less than 1%. As of 2:26 p.m. EDT, June Comex gold futures were at $1,265 an ounce, down 0.96% on the day.
By Neils Christensen |
