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Fed minutes reveal divergence on first rate hike

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Fed minutes reveal divergence on first rate hike

Several Federal Reserve policymakers said last month the central bank is likely to raise its benchmark interest rate in June but “others” said the move will probably occur “later in the year,” according to minutes of the Fed’s March 17-18 meeting.635640892392806380-AP-Federal-Reserve

The report is consistent with Fed policymakers’ forecasts, released after the mid-March meeting, that indicate the first bump in rates since 2006 is unlikely before September as the Fed awaits signs of a pickup in anemic inflation. Still, the minutes, which provide a more detailed window into Fed officials’ debates at the gathering, suggest they haven’t ruled out a June rate increase.

The minutes also offer a rough blueprint for the signals that could indicate an acceleration in inflation is coming – thus making a rate increase viable — including a more stable dollar. The policymakers who anticipate the Fed will pull the trigger later in the year said low oil prices and a strong dollar that makes imports cheaper for US consumers “will continue to weigh on inflation in the near term,” according to the meeting minutes.

Although job growth has accelerated substantially the past year, wage growth has been sluggish and inflation remains well below the Fed’s annual 2% target. The economy’s mixed messages present a quandary as Fed officials consider hoisting rates that have been near zero since the 2008 financial crisis. Fed Chair Janet Yellen said policymakers don’t need to see wage growth or inflation accelerate to raise rates but must be “reasonably confident” inflation will gain momentum in the near-term. She also said she would be uncomfortable raising rates if inflation were to weaken further.

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