FOMC: June Rate Hike Likely If Economy Keeps Improving

Posted by Patrick Barnard on May 18, 2016 No Comments

During its most recent meeting in April, the Federal Open Market Committee (FOMC) voted to take no action on short-term interest rates, leaving them in the range of 0.25% to 0.50% for now – however, minutes from the meeting suggest that the committee will likely vote in favor of raising rates at its next meeting in June, should the economy continue to improve, which, as of right now, looks likely.

“Members generally agreed that, in light of the recent weak readings on spending and production, and with inflation below the committee’s objective, it would be prudent to wait for additional information bearing on the medium-term outlook before deciding whether to raise the target range for the federal funds rate,” the minutes state. “One member, however, preferred to raise the target range for the federal funds rate at this meeting, noting that downside risks to the outlook had diminished and that the outlook was for outcomes consistent with the committee’s objectives.”

In the minutes, Fed officials say there is a “possibility of an increase” in June, provided that the economic data is “strong enough.”

During that April meeting, several committee members felt it was already time to raise rates again.

“A couple of participants were concerned that further postponement of action to raise the federal funds rate might confuse the public about the economic considerations that influence the committee’s policy decisions and potentially erode the committee’s credibility,” the minutes state. “A few participants judged it appropriate to increase the target range for the federal funds rate at this meeting, citing their assessments that downside risks associated with global economic and financial developments had diminished substantially since early this year; that labor market conditions were consistent with the committee’s maximum-employment objective; and that inflation was likely to rise this year toward the committee’s two percent objective.”

As of April, “most participants” believed that if the economic data before the June meeting were strong enough, “it likely would be appropriate for the committee to increase” interest rates.

The committee’s members will watch the economy for signs of continued jobs market strength and indications that inflation is rising toward the Fed’s 2% target.

The Fed last increased rates in December – the first hike in nearly a decade.

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