The amount of new information in the FOMC minutes was limited. However, they did confirm that there is quite a large disparity of views between individual FOMC members on the necessary conditions for delivering a first rate hike. It is interesting to us that the minutes state that ' in a context of progress towards maximum employment and reasonable confidence that inflation will move back to 2% over the medium term, the normalisation process could be initiated prior to seeing increases in core price inflation or wage inflation '.
The minutes also showed that 'several' judged a June rate hike to be warranted - a couple saw the first rate hike in 2016 and the rest later this year. Several should be more than five but, as we highlighted in Flash Comment: FOMC meeting - members now project September liftoff the individual projections suggest that it is at most seven. Note, however, that only two or three of these should be voting members of the FOMC this year. With the March employment report on the weak side of expectations, some of these members are likely to have pushed their preferred date of lift-off slightly into the future. We continue to see the September FOMC meeting as the most likely time for a first rate hike.
The minutes referred numerous times to the appreciation of the US dollar as an important factor that will restrain growth for some time ahead. Participants also pointed to a number of risks to the international economic outlook, including the slowdown in growth in China, fiscal and financial problems in Greece and geopolitical tension.
We got a bit more information on what caused the committee to take down the projected fed funds rate path as drastically as it did. The notes to the economic projections stated that 'nearly half of the participants projected the federal funds rate in 2017 to be more than 0.5 percentage point lower than their estimates of its longer-run value ' (despite them projecting that both unemployment and inflation will be at target at that time). Further, ' reasons included an assessment that the headwinds that have been holding back the recovery will continue to exert some restraint on economic activity at that time, weak real activity abroad and the recent appreciation of the US dollar are likely to continue to restrain US net exports for some time, residual slack in the labour market will still be evident in measures of labour utilisation other than the unemployment rate and that the risks to the economic outlook are asymmetric as a result of the constraints on monetary policy associated with the effective lower bound on the federal funds rate. '
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