The minutes from the March meeting of the Federal Reserve’s monetary policy setting committee, the Federal Open Market Committee (FOMC), provide details of the deliberations regarding assessments of the current state of the economy and the anticipated pace of future increases to the target range for federal funds rate. April is off the table, the funds rate will be frozen at the December level until at least the June meeting.

Concerns about the possible economic impact of financial turbulence early in the year motivated participants to err on the side of caution while considering the appropriate timing of the next rate increase. Early indications are that US economic conditions have largely recovered from the sharp asset price movements in the opening weeks of 2016, but the committee decided it would be prudent to wait for additional information to confirm this view. This caution was a decisive factor in the decision not to raise the funds rate at the March meeting, but meeting participants acknowledged that relatively little additional information would be available before the April meeting.

With respect to the perceived downside risks to the economic and inflation outlook, committee members noted the asymmetry of possible policy responses that might be required: it would be easy to raise interest rates rapidly if economic conditions overheated, but the ability to lower rates in response to an adverse shock to the economy is limited. Again the implication is caution in moving forward.

The economic projections released following the meeting indicate a slim majority of meeting participants expect economic conditions will unfold in a manner consistent with two increases in the funds rate in 2016 (data, not dates will drive the decision). If economic growth, the labor market and inflation sustain recent gains in the interim months, the June FOMC meeting is a strong possibility for the next increase.

Tags: Federal Reserve, FOMC, monetary policy