While the minutes from the April meeting of the Federal Open Market Committee (FOMC) indicated that most participants favored an increase in the target range for the federal funds rate in June, “under the right conditions,” conditions had other plans (April). And the committee voted unanimously to keep the target range unchanged at the current 0.25%-0.50%.
The statement released following the June meeting of the FOMC characterized signals about economic growth and the labor market since the April meeting as mixed. Household spending has rebounded, the housing sector continues to improve, and the drag from net exports appears to have diminished. However, business fixed investment slowed and job growth slowed significantly in April and May. The outlook for inflation was also mixed, with market-based measures of inflation compensation declining, but survey based measures of longer-term inflation expectations little changed. The committee maintains the view that economic and labor market conditions will continue to improve but at a pace that will justify only gradual increases in the target range for the federal funds rate. There were no dissents on the vote.
In the press conference after the meeting Fed Chair Janet Yellen reviewed the strengths and unexpected weaknesses in the economy, and with regard to the labor market emphasized the importance of not overreacting to a single month’s data point. She reiterated that while concerns about global economic and financial market developments from earlier in the year appear to have abated a global slowdown in economic growth continued to leave the US domestic recovery vulnerable. In the Q&A following her prepared remarks Yellen commented that the possibility and extent of economic fallout from the upcoming referendum on Britain leaving the European Union, “Brexit,” heightened uncertainty for both global and domestic conditions.
Yellen repeated the assertion that any future FOMC meeting was a “live” possibility for the next rate increase, but the additional data available by the July meeting, most notably the labor market report for June, is unlikely to completely restore confidence in a sustained labor market rebound. We’re betting on the September meeting for the next increase, and question whether there will be more than one for the year.