June rate hike still in play
The Federal Reserve could still hike interest rates in June despite weak recent U.S. data and investor skepticism, two influential officials with the central bank said on Wednesday, putting the spotlight squarely on the economy's performance in the next two months.
Disappointing U.S. jobs growth, manufacturing activity, and retail sales over the winter had pushed market expectations for a rate hike to later in the year. June has long been seen as the earliest the Fed could tighten policy, after more than six years of near-zero rates.
But New York Fed President William Dudley and Fed Governor Jerome Powell on Wednesday sketched out scenarios in which the central bank could make an initial move earlier than many now expect and then proceed in a slow and gradual manner on further rate increases.
"I could imagine circumstances where a June rate hike could still be in play," Dudley, a permanent voting member on the Fed's policy committee and a close ally of Fed Chair Janet Yellen, told a Reuters Newsmaker event in New York.
"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, adding "the bar is probably a little bit higher" for a June hike given recent data.
Minutes of the Fed's March 17-18 policy meeting, released on Wednesday, also show central bank officials are eager to get the rate hike process started but are likely to go slow once "lift-off" begins.
Several participants at the meeting said they were virtually certain June would be the right time for what would be the first rate hike since 2006, according to the minutes.
While a "couple" of participants said they did not think such a move would be appropriate until next year, the rest of the policymakers would be watching for evidence that the impact of low oil prices and a strong dollar had eased, and that the U.S. economy was continuing to generate jobs.
Upcoming reports on employment, economic growth, prices, industrial activity and other indicators will, as a result, will take on greater importance.
U.S. stocks turned negative and prices for U.S. government debt fell after the release of the minutes, while the dollar gained against a basket of currencies.