Fed may be wedded to a June rate hike

WASHINGTON – May 19, 2016 – The Federal Reserve put complacent markets on notice Wednesday: It could well raise interest rates next month.

Most Fed policymakers said in April they would favor an interest rate hike at a June 14-15 meeting if the economy rebounds from a first-quarter slump, the labor market advances and inflation picks up, according to minutes of the Fed’s April 26-27 meeting.

The officials appeared to place a greater likelihood on a June rate increase than financial markets, which had put less than 20 percent odds on a move next month before Wednesday’s release. The Fed lifted its key rate in December for the first time in nine years but has held it steady since amid U.S. and global economic weakness and volatile markets.

“Most participants judged that if incoming data were consistent with economic growth picking up the second quarter, labor market conditions continue to strengthen and inflation makes progress toward the (Fed’s) 2 percent objective, then it likely would be appropriate” to raise the Fed’s benchmark rate in June, the minutes said.

It’s uncertain whether the economy will cooperate. Economic growth appears to have to have accelerated in the current quarter after growing just 0.5 percent at an annual rate early in the year, with retail sales gaining. And a recent climb in oil prices and fall in the dollar have given “many” Fed officials confidence inflation will rise. But job growth slowed in April.

Policymakers voiced concern last month that markets weren’t realistic about the odds of a June hike. After the minutes release, fed futures gave it a 34 percent chance, from 15 percent Tuesday.

With China’s economy stabilizing and stocks rebounding from a sell-off this year, “participants generally saw the risks stemming from global economic and financial developments as having diminished” but “as continuing to warrant close monitoring.”

Copyright © 2016, USATODAY.com, USA TODAY, Paul Davidson

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