WASHINGTON – Federal Reserve policymakers expressed uncertainty last month about the outlook for the U.S economy because of a sharp slowdown in job growth and the threat posed by a potential vote in Britain to leave the European Union.
Minutes of the June 14-15 Fed policy meeting released Wednesday show a consensus to delay further interest rate hikes until data could show whether an anemic U.S. hiring report for May was merely a temporary blip.
“Almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labour market,” the minutes said.
Policymakers also agreed that they needed to await the outcome of the British vote. Days later, Britain ended up voting to abandon the EU — a move that ignited turbulence in financial markets and has likely deepened caution among Fed policymakers. Many economists think the Fed will raise rates at most one time in 2016, probably near year’s end.
At its meeting last month, the Fed voted 10-0 to leave its key policy rate unchanged in a range of 0.25 per cent to 0.5 per cent. It’s been at that level since December, when the Fed raised the rate from a record low near zero.
Prospects for further rate hikes dimmed last month even before the Fed met after the government said employers added just 38,000 jobs in May. It was the fewest monthly total in five years, and it followed a tepid gain of 123,000 in April.
The June jobs report, to be issued Friday, is expected to show a gain of 160,000 jobs. A solid jobs report could help assuage anxieties about the U.S. economy and renew speculation about when the Fed might resume raising rates.
Few analysts, though, think a healthy jobs report Friday would be enough to speed up the Fed’s timetable for a rate hike in light of the British vote to leave the EU and other concerns about the global economy.
Many economists feel the central bank won’t move rates until September at the earliest, with some forecasting just one rate hike this year or possibly no hikes this year.
“While we don’t rule out a scenario whereby the Fed raises rates once this year, we ultimately expect them to sit tight until mid-2017,” said Michael Dolega, senior economist at TD Economics.
Financial markets had little reaction to release of the minutes, which for the most part echoed themes Fed Chair Janet Yellen raised in her news conference following the June meeting and in testimony before Congress the following week.
Late Wednesday, the Fed issued a statement saying that a “technical error” had resulted in one news organization prematurely transmitting information from the lock-up room where reporters are allowed to review Fed reports under embargo. The Fed said because of the error, some news organizations also experienced a brief delay in releasing their stories at 2 p.m. EDT, when the embargo was lifted.
The Fed said that it was reviewing its lock-up procedures and had informed the Fed’s Office of Inspector General of the error.
The minutes released Wednesday underscored, for example, questions about softness in U.S. business investment spending. Fed officials attributed the weakness in large part to sharply lower oil prices, which triggered cutbacks at energy companies.
But officials also discussed other possible reasons, including a slowdown in corporate profits and “heightened uncertainty regarding the future course of domestic regulation and fiscal policies.” That was an apparent reference to businesses’ concerns about the path of government policy after the November elections.
The minutes showed that Fed officials were closely watching the vote in Britain, which occurred eight days after the Fed meeting. Markets plunged in the first days after the June 23 vote but have rebounded since.
“Most participants noted that the upcoming British referendum on membership in the European Union could generate financial market turbulence that could adversely domestic economic performance,” the minutes said.
In addition to worries about Britain and the EU, some officials expressed concerns surrounding China’s managing of its currency and the effects that China’s high debt levels could have on its economy.