Many participants said that a June rate hike is unlikely, according to the minutes from the April 17-19 Federal Open Market Committee meeting. However, a few participants anticipated that conditions for beginning policy firming will have been met by June. The committee agreed that the timing of the first increase in the target range for the federal funds rate would be determined on a meeting-by-meeting basis, and that the increase in the target rate will be appropriate when they had seen further improvement in the labor market and were reasonably confident that inflation would move back to its 2 percent objective over the medium term.
Fed officials reported that during the intermeeting period, the pace of improvement in the labor market moderated somewhat and CPI continued to run below the FOMC’s longer-run objective of 2 percent, partly restrained by declines in energy prices and further decreases in non-energy import prices. The decline in private spending, combined with a decline in government spending, led to a substantial slowing in economic growth in the first quarter. Most participants agree that the weak quarter was driven by transitory factors, most notably the severe winter weather in some regions and the labor dispute at West Coast ports temporarily disrupting some supply chains. Overall, participants do not believe that the weakness in the first quarter will endure. High consumer sentiment, increased auto sales and a strong increase in household real incomes maintain the Committee’s expectations that the economy will continue to expand at a moderate pace, despite the slowdown in the first quarter.
However, a number of participants suggested that the negative effect of the strong dollar on net exports as well as the dampening effect of low oil prices on firms’ investment spending might be larger and longer-lasting than previously anticipated. Furthermore, the expected boost to household spending from lower energy prices had not materialized as expected.