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Wednesday, May 18, 2016

FOMC Minutes: June Rate Hike Still on the Table

In the minutes of their April 26 – 27 Federal Open Market Committee (FOMC) meeting, Fed officials expressed that they may be ready to raise interest rates once again in June.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing 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,” the minutes stated.

The release of the April meeting minutes follows comments from Fed Presidents Dennis Lockhart of Atlanta and John Williams of San Francisco, who suggested on Tuesday that markets should not discount the possibility of a June rate hike. Lockhart and Williams also stated that they each expect two-to-three additional movements this year.

Federal Fund futures prices have adjusted following the FOMC release, with markets now anticipating a 34% probability of a June rate hike, up from a 4% probability two days prior.

Although members agreed that labor market indicators had improved since the last meeting, other economic indicators had been mixed. Household spending moderated even as household real income had risen and consumer sentiment remained high. In addition, members noted that the housing sector had improved while business fixed investment and net exports had been soft. Due to these soft readings on spending and production, the Committee decided against raising rates during their April meeting.

Read the FOMC minutes.
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