Federal Reserve

Fed likely to hike in June if data improve: Minutes

Fed: June rate hike likely if data improves
Fed: June rate hike likely if data improves

The Federal Reserve will likely raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment, according to minutes from the U.S. central bank's April policy meeting released on Wednesday.

That view, expressed by most Fed policymakers at the last policy meeting, suggests the central bank is much closer to lifting rates again than Wall Street expects.

Prices for futures contracts on the Fed's benchmark overnight lending rate on Wednesday implied that investors only saw a 19 percent chance of a rate increase next month.

But members of the Fed's policy-setting committee said recent economic data made them more confident inflation was rising toward their 2 percent target and that they were less concerned about a global economic slowdown, according to the minutes from the April 26-27 meeting.

"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee's 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June," according to the minutes.

Rate hike odds spike across the board after Fed minutes
Brian Moynihan, president and chief executive officer of Bank of America Corp., speaks during the 2016 Charlotte Chamber Economic Outlook.
Bank of America wants the Fed to hike rates

Some policymakers were wary about a slowdown in U.S. economic growth during the first quarter, when gross domestic product expanded at a two-year low of 0.5 percent. But others argued that ongoing robust job growth suggested the economy was still on track and the growth data could be flawed.

"Most pointed to the steady improvement in the labor market as an indicator that the underlying pace of economic activity had likely not deteriorated," according to the minutes.

Some policymakers said they were concerned financial markets could be roiled by a possible British exit from the European Union in a vote next month or by China's exchange rate policies.

At its April meeting, the Fed kept its target overnight interest rate in a range of 0.25 percent to 0.50 percent. The Fed hiked rates in December for the first time in nearly a decade.

A global equities sell-off and the tightening of financial markets earlier this year largely due to concerns of a slowdown in China prompted the Fed in March to dial back rate hike expectations for the year.

Even so, the Fed signaled at that time that it would likely increase rates twice this year. Investors have been betting on just one hike.

Market expectations for a Federal Reserve rate hike have risen this week amid several hawkish statements from Fed officials.

On Tuesday, Dallas Fed President Robert Kaplan said the U.S. economy is strong enough to justify an interest-rate hike in the "not too distant future," but increases will be very gradual.

San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart both said the central bank's June meeting was a live one.