The Federal Reserve is keeping all options on the table, with an interest rate hike in June still likely according to influential central bank officials. While weak US data and decreasing investor confidence may make an increase seem unlikely, recent statements and minutes from the Fed’s March policy meeting highlight an increased eagerness for tightening after more than six years of near-zero rates.
The possibility of a June rate rise has been somewhat quashed in recent weeks, with decreased job growth, slow retail sales, and disappointing manufacturing activity pushing market expectations for a rate hike back to the end the year. Despite the disappointing data, however, both New York Fed President William Dudley and Fed Governor Jerome Powell have come out in recent days saying a June rate rise is still likely.
“I could imagine circumstances where a June rate hike could still be in play,” said Dudley in a Reuters report, with the Fed President known to be a close ally of Fed Chair Janet Yellen. “If the economy’s strong, the unemployment rate is dropping, wages are rising, and the outlook is good, you could conceivably get to that point,” he said, before adding that “the bar is probably a little bit higher” for a June hike given recent data.
According to Powell in a statement to the Council on Foreign Relations, “You cannot wait until you see the goal posts coming because monetary policy works with these long lags … By the time of the June meeting we will have had … a lot more incoming data on just about everything in the economy. June is a different world than today,” Powell said, adding “I don’t think we need to be in a hurry,” but “you have to start well before you actually hit the goal.”
The possibility of a Fed hike in June depends greatly on economic data over the next two months. However, while commentators were previously waiting for a clear and obvious recovery before forecasting a rate rise, the recent Fed Policy Meeting highlights an increasing swell of participants who want to get started sooner rather than later. While the process of tightening is likely to be very slow once it does start, the Fed are well aware of their role as catalysts for change.
Because rates have been so low for so long, even the smallest adjustment will have a huge impact on financial markets. Most market analysts are still expecting the Fed to hold rates until later in the year, with Wall Street economists generally expecting rates to move in September and Futures Traders shifting their forecast from December to October. Everyone will have their eyes on key economic data releases over the next couple of months, with improved labor markets, stable energy prices, and a stable dollar the factors most likely to lead to an early rate hike.