Federal Reserve signals next rate hike in June
WASHINGTON (AFP) – US central bankers are likely to raise key interest rate ''soon,'' the Federal Reserve said Wednesday, a clear signal of a rate hike coming next month, as financial markets expect.
Fed officials cited the strength of the economy, and solid hiring trends, as well as the fact inflation had inched higher at long last.
However, the Fed will continue to move only gradually, even if inflation rises ''modestly'' above its two percent target – as long as that increase is only ''temporary'' – according to the minutes of the May 1-2 meeting of the policy-setting Federal Open Market Committee.
''Most participants'' at the meeting agreed that if the economy continued to perform as expected ''it would likely soon be appropriate for the committee to take another step,'' the minutes said.
The Fed last raised the benchmark federal funds rate in March, the sixth increase since December, 2015, to a range of 1.5-1.75 percent.
It is expected to hike at least twice more this year but markets have been watching closely for signs the FOMC might be more aggressive in combatting inflation, which has finally picked up to about two percent after languishing for months well below that level.
Kathy Bostjancic of Oxford Economics is among those expecting three more rate hikes this year.
She said the minutes revealed ''as expected that Fed officials overall are more optimistic about the near-term trajectory of the economy.''
While more economists agree with Bostjancic that three more hikes are likely, the Fed's median forecast was for two more – although it was very close.
And the minutes said there were ''a range of views'' among FOMC participants about how many more times the Fed would have to raise interest rates.