Minutes released from the Federal Open Market Committee (FOMC) April meeting strongly suggest that June is off the table for the timing of the first increase in the federal funds rate. Publically, no one inside the Fed has been willing to admit it, outside the Fed few still consider it a real possibility, but now it’s as official as it will get until the June meeting.
From the minutes, on the meeting participants’ discussion of the timing, “A few anticipated that the information that would accrue by the time of the June meeting would likely indicate sufficient improvement in the economic outlook to lead the Committee to judge that its conditions for beginning policy firming had been met. Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.”
The disappointing slowdown in first quarter economic growth and March payroll employment, known at the time of the meeting, increased uncertainty and downside risks to the outlook. Meeting participants discussed whether the weakness would be transitory or more persistent, with implications for the timing of the first interest rate increase. Reasons to believe the slowdown would be transitory included the end of severe winter weather and the labor dispute at West Coast ports, combined with favorable fundamental factors like low interest rates, rising household real income and high consumer confidence.
Reasons to believe the factors leading to the downturn could be more persistent included the possibility of underestimating the size and length of the impact of the strong dollar on trade, as well as the decline in investment spending resulting from declining oil prices. The current absence of increased household spending due to lower energy prices was also mentioned. A strong rebound in near-term growth will require a rebound in household spending, so the absence of that boost is conspicuous.
In any event, the consensus has shifted from June to the September meeting as the timing of lift-off. We’ll see what a few more months of data brings.
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