In that context, there were no great surprises in the minutes from the April FOMC meeting. The FOMC expects reacceleration in output growth, can’t quite explain the Q1 slowing, and can’t rule out seasonal distortions to the Q1 GDP data. But most FOMC members “continued to see the risks to the outlook for economic growth and the labor market as nearly balanced.”
“Most participants expected that, following the slowdown in the first quarter, real economic activity would resume expansion at a moderate pace, and that labor market conditions would improve further.”
No June rate hike
Here are the key points from the FOMC minutes regarding the timing of upcoming Fed fund rate hikes: “A few anticipated that the information that would accrue by the time of the June meeting would likely indicate sufficient improvement in the economic outlook to justify tightening. Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.”
Weak capex on energy
In the latest FOMC statement, the FOMC finally acknowledged weaker capex, “in part reflecting sizable reductions in capital expenditure in the energy sector.” That’s fine, as far as it goes, but the important question right now is why other capex has also been slipping. FOMC members mentioned the dollar and exports but did not provide a simple solution. At the same time, the minutes reported that business contacts remained optimistic about sales, investment and hiring, and that the FOMC expects reacceleration.
On Treasury yield volatility—they’re finally listening
The FOMC indicated some concern about Treasury yield volatility once tightening commences. “It was suggested that the tendency for bond prices to exhibit volatility may be greater than it had been in the past, in view of the increased role of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds.”