Minutes from the Federal Open Market Committee April Meeting – Loud and Clear(?)

“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.”

Interpreting the statement released at the conclusion of the Federal Open Market Committee (FOMC) meetings can be like reading tea leaves. The minutes, released three weeks later, can (but don’t always) provide more clarity. This one is pretty clear.

In between the April and June meetings the major economic data releases will include: labor market reports for April and May (April was weak), the advance and second estimate of first quarter GDP growth (the advance estimate, based on data subject to revision, was 0.5%), core inflation for March and April (March dipped to 1.6% from 1.7% in February), and retail sales for April and May (components of personal consumption expenditures (PCE), April rebounded from a weak March). Evidence in these releases that economic growth, the labor market and inflation are (back) on track in the second quarter will be strong predictors of an interest rate increase at the June meeting.

It remains very much about the data. “Regarding the possibility of adjustments in the stance of policy at the next meeting, members generally judged it appropriate to leave their policy options open and maintain the flexibility to make this decision based on how the incoming data and developments shaped their outlook for the labor market and inflation as well as their evolving assessments of the balance of risks around that outlook.”

And clearly communicating the committee’s intent and assessments to the public and market participants would enhance market stability. “It was noted that communications could help the public understand how the Committee might respond to incoming data and developments over the upcoming intermeeting period.” The sign posts are pretty clear.

As to whether futures contracts assigning probabilities to various dates for the next rate increase: “Some members expressed concern that the likelihood implied by market pricing that the Committee would increase the target range for the federal funds rate at the June meeting might be unduly low.”

The minutes from the April meeting aren’t telling us the committee will raise rates in June, they’re telling us what to look for in the data. And Fed Chair Janet Yellen’s recent assertions that any meeting is a “live” meeting sounds credible from here.

 



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