Fed split on signals for first rate increase
WASHINGTON – Federal Reserve officials had differing views in June on the best way to signal to financial markets when they might raise a key short-term interest rate. They were in broad agreement, however, that they will likely announce an end to their monthly bond buying program in October.
Minutes of the Fed’s June 17-18 meeting released Wednesday showed officials split between those who wanted to communicate that the Fed remains concerned that inflation is rising too slowly and those who were worried that the economy might rebound faster than currently expected.
In the end, the Fed statement stuck to the current guidance that rates will likely remain low for a “considerable time” after the bond purchases end.
On the bond purchases, Fed officials supported the view that the last reduction would likely total $15 billion and be announced at the Oct. 28-29 meeting.
Wall Street had little reaction to the minutes with stocks extending gains in the absence of any strong signal from the Fed that its first hike in short-term rates could come sooner than investors now expect.
The minutes showed that Fed officials discounted the big drop in economic growth in the first three months as a slump that reflected temporary factors. They continued to express optimism that the economy will rebound to healthy growth rates for the rest of this year.
“Fed officials were not overly worried by either the decline in first-quarter GDP or the evidence of a pickup in inflation,” said Paul Ashworth, chief U.S. economist at Capital Economics.