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Jul 8 2016 11395 1
class="fr-tag">Wary Fed is in no rush to raise interest rates
WASHINGTON – July 7, 2016 – Citing the recent sharp slowdown in U.S. job growth and imminent Brexit vote, Federal Reserve policymakers last month wanted to await more evidence that the labor market and economy were back on track before lifting interest rates again, suggesting the next hike is not imminent.
Fed officials didn't provide a timetable for future increases, according to minutes of the Fed's June 14-15 meeting. But they indicated their decisions could play out over "coming months" and they must review a range of positive data before acting again.
"They judged that their decisions about the appropriate level of the federal funds rate in coming months would depend importantly on whether incoming information corroborated the (policymaking committee's) expectations for economic activity, the labor market, and inflation," the minutes said.
The meeting account also says Fed officials agreed to assess effects of the United Kingdom's vote on whether to leave the European Union – known as Brexit – on markets and the U.S. economy. The meeting took place a week before the U.K. decided to secede from the EU.
The summary suggests that a rate hike at the Fed's late-July meeting is unlikely and even calls into question a move at its mid-September gathering. The Fed lifted its federal funds rate in December for the first time in nearly a decade but has stood pat since, amid U.S. and global economic weakness and market turmoil.
Employers added an average of just 80,000 jobs a month in April and May, significantly below the 200,000-plus pace in recent years, including a 51/2-year low of 38,000 in May. Policymakers agreed "it was advisable to avoid overreacting to one or two labor market reports," the minutes say. Still, "almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labor market."
At the same time, some Fed officials noted that with the unemployment rate and inflation near the Fed's targets, the next rate increase "should not be delayed too long." They said wage growth was accelerating and a key inflation measure was moving toward the Fed's 2 percentage annual target, adding that the economy perked up in the second quarter, though business investment remained weak.
Barclays economist Rob Martin says a solid pickup in job growth this summer likely will clear the way for a September rate increase, while disappointing gains will probably take September off the table.
The minutes show Fed policymakers were also concerned about the Brexit vote. Most said it "could generate financial market turbulence that could adversely affect domestic economic performance." After the vote, stocks sold off and then largely rebounded but have been volatile.
Fed officials revealed at the meeting they expect slower rate hikes the next few years, with Fed Chair Janet Yellen citing economic hurdles such as weak productivity growth and an aging labor force. Several officials believe slower rate increases would let them better assess their effect on the economy, the minutes say.
Copyright 2016, USATODAY.com, USA TODAY, Paul Davidson