The Federal Reserve on Wednesday published the minutes of its June 14-15 meeting. The Fed shifts to Wait-watch approach after May employment report triggered uncertainty. The latest developments post BREXIT clouded uncertainty over global macro environment.The following are the summary of the minutes.

  • The June 14-15 meeting indicated that the pace of improvement in labor market conditions slowed in April and May but that real gross domestic product (GDP) appeared to be rising faster than in the first quarter.
  • Consumer price inflation continued to run below the Committee’s longer-run objective of 2 percent
  • Total nonfarm payroll employment gains slowed in April and May
  • The unemployment rate dropped to 4.7 percent in May
  • Over the first two months of the second quarter, both the labor force participation rate and the employment-to-population ratio moved down on net
  • The four-week moving average of initial claims for unemployment insurance benefits moved up a little, on net, from late April to early June but was still at a low level.
  • Growth in real personal consumption expenditures (PCE) appeared to be picking up in the second quarter.
  • Consumer sentiment as measured by the University of Michigan Surveys of Consumers remained upbeat in early June.
  • Almost all officials believe that May employment report triggered uncertainty.
  • Most officials expect inflation to rise towards the 2% inflation target.
  • Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data regarding labor market conditions as well as information that would allow them to assess the consequences of the U.K.
  • A handful (couple) FOMC members emphasized the need to wait for their positions.
  • Most officials in June that if the growth rate to pick up, that interest rates will be guaranteed.
  • Many participants commented that the level of the federal funds rate consistent was likely to be lower in the longer run than they had estimated earlier.
  • Fed officials are also concerned about the employment and inflation momentum.
  • FOMC members opposed in part on raising interest rates to wait too long.
  • Many Fed officials believe the potential employment growth slowed, confidence in the inflation rate rose to a target level of reduction.
  • Some also noted that continued uncertainty regarding the outlook for China’s foreign exchange policy and risks to global financial stability and economic performance.
  • Most participants judged that, in the absence of significant economic or financial shocks, raising the target range for the federal funds rate would be appropriate if incoming information confirmed that economic growth had picked up, that job gains were continuing at a pace sufficient to sustain progress toward the Committee’s maximum-employment objective, and that inflation was likely to rise to 2 percent over the medium term.

The dot plot released with June statements revealed that, policy makers were divided into two camps.

dot plot Picture source: Bloomberg

Bloomberg reported, “Six believing it would be appropriate to raise rates only once this year, while nine expect two rate increases in the event that their economic forecasts are realized”.

The average probability assigned by respondents to the Desk’s June Survey of Primary Dealers and Survey of Market Participants was near zero for a rate hike in June and around 20 percent for a rate increase in July. The median respondent in each survey indicated that the most likely outcome was only one hike in 2016, down from two in the April surveys.

The next meeting of the Committee would be held on Tuesday-Wednesday, July 26-27, 2016.

Full release: Minutes of the Federal Open Market Committee