Fed split on tim­ing of in­ter­est-rate hike: min­utes


The Fed­eral Re­serve was split at its last pol­icy meet­ing on when to raise ul­tra-low U.S. in­ter­est rates, with tim­ing rang­ing from June to 2016, ac­cord­ing to min­utes re­leased Wed­nes­day.

“Sev­eral par­tic­i­pants judged that the eco­nomic data and out­look were likely to war­rant be­gin­ning nor­mal­iza­tion at the June meet­ing,” said the re­port on the March 17-18 meet­ing of the Fed­eral Open Mar­ket Com­mit­tee (FOMC), the cen­tral bank’s pol­icy arm.

Given the fall in en­ergy prices and the stronger dollar, the other FOMC par­tic­i­pants deemed the econ­omy would not be able to weather a hike un­til later in the year. “A cou­ple” said liftoff would re­main un­likely un­til 2016, the min­utes said.

At the meet­ing, the Fed left its key fed­eral funds rate un­changed near zero, where it has been pegged since late 2008 to sup­port the re­cov­ery from the Great Re­ces­sion.

It dropped from its pol­icy state­ment a line used pre­vi­ously say­ing it will re­main “pa­tient” be­fore act­ing -- send­ing a sig­nal that a rate hike could come as early as June.

But the FOMC said it ex­pected the tim­ing would be ap­pro­pri­ate when it had seen fur­ther im­prove­ment in the la­bor mar­ket and is “rea­son­ably con­fi­dent” that cur­rently weak in­fla­tion will move back to its 2 per­cent tar­get over the medium term.

The Fed has blamed tepid in­fla- tion on “tran­si­tory” fac­tors, in­clud­ing the rapid dive in crude-oil prices since June.

The lat­est data avail­able on the Fed’s pre­ferred in­fla­tion mea­sure, the “core” per­sonal con­sump­tion ex­pen­di­tures price in­dex, which ex­cludes food and en­ergy, showed a mod­est 1.4 per­cent in­crease in Fe­bru­ary from a year ago.

Hike Pos­si­ble be­fore

In­fla­tion Rises

The par­tic­i­pants dis­cussed when it might be ap­pro­pri­ate to begin to raise the in­ter­est rate, in the con­text of in­fla­tion likely to re­main weak in the short term.

“The nor­mal­iza­tion process could be ini­ti­ated prior to see­ing in­creases in core price in­fla­tion or wage in­fla­tion,” the min­utes said.

“Fur­ther im­prove­ment in the la­bor mar­ket, a sta­bi­liza­tion of en­ergy prices, and a lev­el­ing out of the for­eign ex­change value of the dollar were all seen as help­ful in es­tab­lish­ing con­fi­dence that in­fla­tion would turn up.”

The par­tic­i­pants noted that eco­nomic growth had mod­er­ated since their Jan­uary meet­ing, with slower con­sumer spend­ing, a weaker hous­ing mar­ket and the stronger dollar ham­per­ing ex­ports.

The meet­ing came be­fore a batch of weak­en­ing eco­nomic data, in­clud­ing the dis­ap­point­ing March jobs re­port last Fri­day that showed job growth of only 126,000 po­si­tions, half of what was ex­pected and the worst month since De­cem­ber 2013.

“We ex­pect that the Fed will soon see the ev­i­dence it needs to de­ter­mine that March was an aber­ra­tion,” said Paul Edel­stein of IHS Global In­sight.

“Mean­while, thanks to the Fed’s de­lay in ex­pected rate hikes and re­cent ev­i­dence that the eu­ro­zone is mov­ing away from de­fla­tion, the as­cent of the dollar ap­pears to have stopped. This in­for­ma­tion cer­tainly sug­gests that there is a fairly low bar for the Fed to raise rates in Septem­ber, which re­mains our fore­cast.”

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