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US Apr 16 FOMC Minutes: Don't Rule Out June
The April FOMC Minutes Is Read As Hawkish With Most Fed Participants Explicitly Naming June As "Likely Would Be Appropriate" To Raise Rates Provided The US Economic Growth Pick Up In 2Q
The US Federal Reserve have put back a potential June rate hike into play again with its April 2016 FOMC meeting minutes, in particular with this paragraph within the text:
"Participants agreed that their ongoing assessments of the data and other incoming information, as well as the implications for the outlook, would determine the timing and pace of future adjustments to the stance of monetary policy. 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(
At the same time, we have some FOMC members expressing concerns that "the likelihood implied by market pricing that the Committee would increase the target range for the federal funds rate at the June(6) meeting might be unduly low."
Based on the quotes cited above, there were 6 mentions of the June meeting in a policy context in that short amount of text (see the numbers highlighted in red). And with several district Fed Presidents in recent weeks, reiterating the June meeting being a "live" meeting and not to rule out a mid-year rate hike, this in our view means that the possibility of a June rate hike is certainly not dead yet. And not surprisingly, the odds for Fed rate hike action in June jumped. Based on trading in futures and options data compiled by Bloomberg, the probability of a 25bps Fed rate hike in June 2016 FOMC lunged higher to 32% (18 May) from just 4% at the start of the week (16 May) while the chance of a July hike also jumped to 47% (from 19.4% on 16 May).
Our Fed Outlook – Keeping Our Two 25-bps Rate Hike Trajectory In 2016, Focus Is On Yellen
We are keeping our projection for the US Fed policy trajectory to remain at two 25bps rate hikes in 2016 (one in each half of the year – at the 14/15 June and 13/14 December FOMC meetings) to bring the FFTR to 1% by end-2016. But nothing is cast in stone and there remains a lot of uncertainty on the 2016 outlook and importantly, the risk still looks tilted towards the downside so we may yet see a shallower rate trajectory. That said, barring any external risk event, we believe that the Fed will do at least one hike in 2016 (not zero), probably pushing that decision right to the end in the December FOMC if needed, just like in 2015.
But perhaps more important than data is the Fed speak leading up to the June FOMC decision and the most watched Fed speaker will certainly be the FOMC Chair Janet Yellen. Yellen is scheduled to attend the G7 finance ministers & central bank governors' Meeting at Sendai, Japan on 20-21 May 2016. Thereafter, Yellen will speak at two events: firstly, at Harvard University's Radcliffe Day on 27 May (10:30pm Singapore time) which according to the program details, Yellen will be engaged in "a conversation about her ground-breaking achievements" and secondly, at the World Affairs Council of Philadelphia on 6 June (7 June, 12:30am Singapore time) where Yellen will deliver a luncheon event address. And yet the biggest issue troubling the Fed Reserve ahead of its 14/15 June FOMC is an international one that is the UK referendum on whether to stay in the EU that will take place a week after the June FOMC on 23 June 2016.
