June hike an option but Fed officials split on prospect

Federal Reserve policy-makers are open to the idea of raising rates in June, minutes from their April meeting show, but there is a "range of views" on how likely it is to materialise.

The decision to hold the target range for the federal funds rate at 0.25% to 0.5% last month was not especially contentious. Only a "few" participants at the Federal Open Market Committee (FOMC) meeting considered it "appropriate" to hike.

It could be a closer decision next month. According to the minutes, "most" participants feel an increase would be in order if data shows economic growth picking up, the labour market strengthening and inflation moving towards the Fed's target.

The FOMC is, however, split on the likelihood of this scenario. "Several participants were concerned that the incoming information might not provide sufficiently clear signals" by the June 14–15 meeting, the minutes say.

"Some" have "more confidence" the incoming data will prove "broadly consistent" with the conditions that would warrant a hike. Labour market conditions have since continued to improve, with non-farm payrolls increasing by 160,000 in April.

The minutes suggest there is more concern over the inflation outlook. Annual PCE inflation was 1% in February, with core PCE inflation at 1.75%. Despite this, "some" participants anticipate only "gradual" progress to the 2% target.

"Several" also see "important downside risks" to the inflation outlook, the minutes say. These officials highlighted the "still-low readings" on measures of inflation compensation and the "slippage" in some measures of expectations.

"However," the minutes add, "for many other participants, the recent developments provided greater confidence that inflation would rise to 2% over the medium term". This is, in part, because of recent increases in alternative measures of inflation, including the trimmed mean PCE and median CPI.