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Many Fed officials see June rate hike unlikely

Xinhua, May 21, 2015 Adjust font size:

Many Federal Reserve officials didn't expect to raise interest rate in June as they believed the data available in June would not provide sufficient confirmation that the economic conditions warrant the liftoff, according to the minutes of the Fed's monetary policy meeting on March 17-18 published Wednesday.

The minutes showed "a few" Fed officials believed the data in June would likely indicate sufficient improvement in the economic outlook to lead the central bank to begin the first rate hike. At the same time, officials did not rule out the possibility of a rate hike in June.

Following the release of the minutes, the market widely sees September or even later as the most likely time for a Fed rate increase. The Fed has kept its benchmark short-term interest rate near zero since December 2008.

According to the minutes, the Fed officials expected the economic growth would return to a moderate pace over the rest of this year following a weak performance in the first quarter. But they were cautious about the economic outlook and highlighted concerns about the weaker-than-expected consumer spending.

A number of Fed officials noted the expected boost to the household spending from lower oil prices had so far not materialized, highlighting the possibility of less underlying momentum in consumer expenditures than they had previously judged. They also suggested the adverse impacts of the earlier appreciation of the U.S. dollar on net exports or of the earlier decline in oil prices on firms' investment spending might be larger and longer-lasting than previously anticipated.

U.S. real gross domestic product (GDP) increased at an annual rate of 0.2 percent in the first quarter this year. The minutes showed Fed officials discussed whether the weakness of spending in the first quarter primarily reflected temporary factors or instead suggested a longer-lasting weakness. Most officials believed the transitory factors, including severe winter weather in some regions, the labor dispute at West Coast ports and a pattern of weak first quarter, can be attributed to the weak performance in the first quarter.

According to the minutes, Fed officials also highlighted possible risks related to the low level of term premiums which could threaten financial stability.

In early May, Fed Chair Janet Yellen also warned of the risks of low long-term interest rates, which could move up rapidly after the Fed raised interest rates. She cited the taper tantrum in 2013 as an example for such risk.

In the summer of 2013, then Fed chair Ben Bernanke suggested that the Fed could start reducing its bond purchases in the later part of that year, which triggered sharp upward movement in rates and caused disruption across the financial system. Endite