The Federal Open Market Committee (FOMC), the policymaking arm of the Federal Reserve, has already met twice this year without another rate hike following December’s historic liftoff. Now, according to the minutes from the March FOMC meeting [1] released Wednesday, the federal funds target rate will most likely remain at its current 0.25 percent to 0.50 percent range until at least the June FOMC meeting, which means a rate hike would be off the table for the FOMC meeting in April.
The Fed noted in the minutes that “raising the target range as soon as April would signal a sense of urgency (FOMC participants) did not think appropriate.” The central bank remains cautious in moving forward with future rate hikes largely due to the fact that it would be easy to raise the rates during an economic upturn, but considerably more difficult to lower the rates in response to an adverse shock to the economy.
“Concerns about the possible economic impact of financial turbulence early in the year motivated participants to err on the side of caution while considering the appropriate timing of the next rate increase,” said Robert Denk, AVP for Forecasting and Analysis at the National Association of Home Builders (NAHB) [2]. “Early indications are that U.S. economic conditions have largely recovered from the sharp asset price movements in the opening weeks of 2016, but the committee decided it would be prudent to wait for additional information to confirm this view. This caution was a decisive factor in the decision not to raise the funds rate at the March meeting, but meeting participants acknowledged that relatively little additional information would be available before the April meeting.”
The notes from March’s meeting released on Wednesday indicate that FOMC participants expect economic conditions to warrant two rate hikes in 2016, but as always, the decision will be driven by economic data; according to Denk, if the recent economic gains are sustained in the next two months, a rate hike at the June FOMC meeting is a “strong possibility.”
“The minutes from the FOMC’s March meeting reflect a growing gap in the performance and outlook of the U.S. economy compared to the global economy,” said Curt Long, Chief Economist at the National Association of Federal Credit Unions (NAFCU [3]). “While the committee managed to show a relatively united front in taking a wait-and-see approach to emerging risks in the global outlook, that may not be the case later in the year.”
Long continued, “If the domestic economy continues to advance at a moderate pace while global risks remain, we may see sharper disagreements between the hawks and doves on the appropriate monetary policy response later in the year.”
Click here [1] to view the FOMC minutes from the March meeting.