Chance of Rate Hike in June Decreases to 90% | Federal Reserve May Meeting Minutes Explained

While the Federal Reserve has previously forecasted up to four rate hikes in 2018, the recent Federal Open Markets Committee’s May meeting minutes illustrate that may not be the case―at least not at this time. Even with many experts predicting a total of four rate hikes for the year, the Fed funds features are downgrading the likelihood by three percent.

While the minutes detailed a variety of economic factors that would warrant an increase to the federal funds rate―including a stronger labor market, GDP growth, stable consumer price inflation and no change to the national unemployment rate―it also provided factors against an increase. The meeting minutes suggest that there was concern for the effects of tariffs and trade restrictions.

“A number of participants reported concern among their business contacts about the possible ramifications of the recent imposition of tariffs on imported steel and aluminum,” the minutes detailed. “Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy.”

Also a topic of concern was the uncertainty surrounding the tax cuts and if they would be permanent or create higher budget deficits, both “sources of downside risk to the economic outlook.”

In the end, the Federal Reserve voted against a rate increase. While this was an expected move, the market had previously predicted a 94% chance of a rate hike in June, which after the May meeting has decreased to 90%.

“Members agreed that the timing and size of future adjustments to the target range for the federal funds rate would depend on their assessments of realized and expected economic conditions relative to the Committee’s objectives of maximum employment and 2 percent inflation,” the minutes explained. “They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

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