Catching many investors off guard, the Federal Reserve made clear Wednesday that an interest rate hike in June is likely if the economy keeps improving.
The minutes of their most meeting in late April show that Fed officials widely felt it would be time to raise rates at their June 14-15 meeting as long as hiring and economic growth further strengthened and inflation showed signs of accelerating.
The Fed had voted 9-1 in April to keep rates unchanged while noting that threats from the global slowdown had eased.
Given the suddenly increased likelihood that the Fed will raise rates at its next meeting, stocks turned lower and bond yields jumped after the minutes were released at 2pm Eastern time.
The minutes said some Fed officials did express concerns at the April meeting that the economic data might not be clear enough by mid-June to determine whether a rate hike was warranted. But this view was balanced against the belief of other officials that the data would prove consistent with a June hike.
Even at the April meeting, Fed officials were encouraged by developments in the US economy and financial markets, the minutes showed. Several participants suggested that the risks to the economic outlook were now "roughly balanced."
The Fed had last signaled its belief that risks were balanced in December when it hiked rates for the first time in nearly a decade, raising them from record lows near zero. But after turbulence struck financial markets and the global economy weakened, the Fed removed that assessment from its descriptions of the economy and held rates steady.
Until now, many economists have assumed that the Fed would leave rates alone at its June meeting. Some had noted that the Fed will meet just a week before Britain votes on whether to leave the European Union – a possibility dubbed Brexit – and that the central bank might want to avoid destabilising markets with a rate hike.
&uuid=(email))