Federal Open Market Committee’s first meeting of 2016 had lots of “Uncertainty” which doubts the interest rate path in future.
The minutes of the meeting released indicates in no and many uncertain terms the uncertainty and lack of clarity. It also agreed to the increased uncertainty and downward trend to the U S economy.
As per the minutes, officials are concerned over the tightening of global financial conditions and economic indicators point to unclear U S economy.
Central Bank lifted the rates in December. The above meeting happened not under ideal circumstances after that. Fed could have utilized the growing labor market and possibly raised the rates once more in the beginning of 2016.
In the interim, were China’s worst economic growth year end, low oil prices, economic downturn of Russia and Brazil. Wall Street started the year with a huge stock sell off.
"Developments in commodity and financial markets, as well as the possibility of a significant weakening of some foreign economies, had the potential to further restrain domestic economic activity," as per the minutes. It noted "the large cumulative declines in energy and other commodity prices could have pronounced adverse effects on some firms and countries that are important producers of such commodities."
Stabilizing price and increasing the employment are the mandate from Congress to Fed. Fed Chair Janet Yellen and the committee have to braze volatility and stock market collapse specially of Wall Street in January, to achieve the above.
She testified to the House Financial Services Committee that they are monitoring the situation on the global conditions and also the inflation and labor market and assessing the implications.
In spite of the worst global economic situation, since FOMC meeting, the conditions are improving.
As per the report of The Bureau of Labor Statistics, unemployment rate has fallen, lowest in eight years and new hires and voluntary quits increased, a nine year high. Improvements are also in the inflation trends, consumer spending and wage metrics.
The rate hike option is still open for FOMC when they meet again in March.
A research note of Lindsey Piegza, chief economist at Stifel Fixed Income indicates that markets are steady now and as per him Chair Yellen is prepared to act with the evolving situation.
In spite of the pessimism expressed in the minutes, markets are looking good from the fact that 290 points were gained by Dow Jones Industrial average after its release. This was also due to the positive response of investors to the caution and possibly no drastic rise in the interest rate contrary to prediction.
Last week’s research note of Scott Anderson, chief economist and senior vice president at Bank of the West says, "The markets are looking for total capitulation on further rate hikes this year," and continues "The earliest the Fed would likely hike again, in my opinion, is at the June FOMC meeting which happens to include a Yellen press conference and update on the FOMC's economic and interest rate forecasts".
