Federal Reserve officials indicated that they will likely raise interest rates in June, minutes from the central bank’s May 1-2 policy meeting show.
Members of the Federal Open Market Committee judged that “it would likely soon be appropriate for the committee to take another step” to hike the benchmark short-term interest rate if economic data confirms their outlook, according to the minutes, which were published Wednesday.
The Fed has signaled a total of three interest rate increase this year, including a rate hike in March. But officials were divided between telegraphing three or four rate hikes, and investors are closely watching for signs that the Fed could accelerate its timeline.
Fed officials have noted that inflation is moving closer to 2%, though they could allow inflation to run slightly above their target on a temporary basis without taking action, according to the minutes.
Stronger inflation, along with continued economic growth and low unemployment, could encourage the Fed to add a fourth rate increase before the end of 2018.
Several policy makers said there was “little evidence” of an overheated job market, easing concern that a fourth increase in rates would be needed.
“It appears, for now, that the market noise of today—inflation, trade wars, and the yield curve—is not giving the Fed significant pause,” said Mike Loewengart, vice president of investment strategy at E*TRADE.
Despite some “relaxed language” on inflation, it’s “full steam ahead on the road to Fed normalization,” he added.
The Fed minutes also revealed that some officials believe uncertainty regarding trade issues “could damp business sentiment and spending,” although the Trump administration continues to negotiate with China and other nations. The potential for higher Chinese tariffs on key U.S. agricultural products could hurt the nation’s competitiveness in the long run, members said.
Officials also observed that strong global oil prices could put upward pressure on inflation because of higher energy costs. The Fed expects crude oil production to grow amid rising demand.