Fed minutes likely to reveal debate on June, July rate hike

(Bloomberg) — The Federal Reserve will shed more light this week on the risks of either raising interest rates amid global uncertainty or leaving them on hold again as the U.S. economic outlook improves.

Minutes of the Federal Open Market Committee’s April 26-27 meeting will be released at 2 p.m. on Wednesday. Several regional Fed presidents said last week that a move could be possible in June or July, though there’s been no recent public comment from Chair Janet Yellen or her number two, Stanley Fischer. Yellen will speak at Harvard University on May 27 and Fischer delivers remarks Thursday in New York.

Investors see less than a 23 percent chance the Fed will hike at either of its next two meetings, according to pricing in federal funds futures. The minutes could show how many policy makers wanted to get on with rate increases, versus those arguing for caution. It may also unpack the debate around the risks to the U.S. and global economic outlook.

“The April FOMC statement was an attempt by the committee to balance out the odds of a June move a little bit,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York. “They weren’t ready to say they wanted to go in June, but they felt like the odds priced in June were too low.”

Global Outlook

At the conclusion of its April 26-27 meeting in Washington, the FOMC left its benchmark rate unchanged, but updated its policy statement by removing a reference to “global economic and financial developments” as an ongoing risk. There was no press conference following that meeting.

The FOMC has held its target range for the federal funds rate unchanged at 0.25 percent to 0.5 percent since lifting it in December for the first time in nearly a decade. Officials in March forecast they would raise rates twice this year but investors see only one move.

One reason for this skepticism is the mixed readings on the U.S. economy so far in 2016, with ups and downs in consumer spending despite steady job creation while the Fed’s preferred gauge for inflation remains under its 2 percent target, though it may be beginning to build. Consumer prices, which the Fed doesn’t target, increased 0.4 percent in April compared to the month before, Labor Department data showed on Tuesday, registering the largest gain in three years.

Financial markets have also been volatile, especially in the first three months of the year, as global growth forecasts were cut.

Brexit Risk

Fed officials next gather on June 14-15, a little more than a week before Britain holds a referendum on European Union membership. A vote on June 23 for the U.K. to leave could renew financial market tensions.

In its April statement, the FOMC also stopped short of offering an assessment of the balance of risks to the outlook, an ongoing feature of post-meeting announcements that was ditched in January as global economic uncertainties increased.

“What we may receive is just more color on the decision not to put in a balance-of-risks assessment,” said Dean Maki, chief economist at Point72 Asset Management LP in Stamford, Connecticut. It could be that there was too much disagreement on the likely persistence of the apparent slowdown in the first quarter, or concern about sparking market turmoil by sending a strong signal about imminent rate hikes, he said.