No interest rate hike in June, Fed says

Although the FOMC sees insufficient market reasons to begin an interest rate hike in June, Fed chief Janet Yellen believes such a move could come before the end of this year [Xinhua]

Minutes from a meeting of the US Federal Reserve’s Open Market Committee (FOMC) in April were released earlier today and appear to indicate that there will be no increase in interest rates in June.

Many participants [during the April 28-29 FOMC meeting], however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes said.

This marks a change in tone from sentiments expressed earlier in the year when economic data showed a stronger economy.

Since then, however, first quarter GDP growth statistics were disappointing and came in much weaker than expected.

The minutes, however, showed that many of the 12 prominent bankers that make the FOMC believe the slowdown is “transitory” and that the US economy will bounce back.

But until then, the Fed wants to see improvement in labor market conditions and increased consumer spending.

They also want to see inflation move upward of negative (deflationary) levels.

According to the Bureau of Labor Statistics, inflation in March 2015 stood at -0.1 per cent, dropping from zero per cent in February. In the same period last year, inflation stood at 1.5 per cent.

This is the first time the US has fallen into deflation since the sub-prime mortgage crisis in the US in 2008 sparked a global financial crisis.

There are fears that the US is now going through the same slowdown seen in Europe where the European Central Bank (ECB) began quantitative easing to lift many eurozone countries out of deflation, a critical impediment to healthy economic growth.

The Fed last year terminated its own QE; Europe is expected to end it’s financial assistance program in September 2016.

Market analysts will now be looking to a speech from Fed chief Janet Yellen about the health of the US economy. Yellen has previously said that she would like to see an interest rate hike some time this year.

But some FOMC members believe early 2016 would be a better target.

The BRICS POST with inputs from Agencies