Fed: Preference for June – Rabobank

Philip Marey, Senior US Strategist at Rabobank, suggests that the key phrase in the minutes of the FOMC meeting on April 26-27 was that ‘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.’

Key Quotes

“In fact, a few participants already wanted to hike at the April meeting, with Esther George dissenting openly from the decision to keep monetary policy unchanged in April.

Participants expressed a range of views about the probability of a June hike. Several participants were concerned that incoming information might not provide sufficiently clear signals to determine by mid-June whether a hike would be warranted. Some participants expressed more confidence that incoming data would prove broadly consistent with economic conditions that would make a hike in June appropriate. Some participants were concerned that markets may not have properly priced in the likelihood of a June hike, and they emphasized the importance of communicating clearly over the intermeeting period how the Committee intends to respond to economic and financial developments.

The minutes support our call for 2 hikes this year, as well as our forecast for the first to take place in June. (We expect the second of the year in December.) Therefore, we stick to our June forecast, but we also like to point out that the primary downside risk to our forecast lies in the Employment Report for May. An inconclusive report may elevate the risks that are still in the minds of the Committee. If US economic momentum appears to be fragile, then concerns about China, and the implications of a possible Brexit could weigh more heavily on the minds of the Fed.”