Hilsenrath Confirms Hawkish Fed Sees Q1 Weakness As A Blip, June Liftoff Possible

Issued with light-speed typing and proofing, The Wall Street Journal's Jon Hilsenrath explains what we should think about the Fed's minutes...

Federal Reserve officials meeting in late April doubted they would be ready to raise short-term interest rates by midyear, according to minutes of the meeting released Wednesday.

Fed officials are trying to make sense of a first-quarter economic slowdown. Many at the April 28-29 policy meeting believed temporary factors were holding the economy back. Before they lift rates, they want to be confident growth is on track, unemployment will keep falling and inflation will gradually rise toward their 2% goal.

The minutes, released with the regular three-week lag, showed that only a few Fed officials thought they would have enough confidence those conditions would be met by the June 16-17 meeting.

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 lead the Committee to judge that its conditions for beginning policy firming had been met,” the meeting minutes said.


“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.”

Many Fed officials began the year believing they might start raising short-term interest rates from near zero by midyear, but the winter slowdown has sidetracked their plans. The Commerce Department reported last month that the economy expanded at a small 0.2% annual rate in the first quarter and many analysts expect that estimate to be revised down. The second quarter is off to a mixed start.


Fed officials and Fed staff were generally upbeat about the medium-run outlook, even though the economy had clearly stumbled in the first quarter. Fed staff, according to the minutes, revised up its growth outlook because the dollar had weakened—which could help exports—and interest rates were expected to stay low longer than previously expected.

Many officials wrote off the first-quarter stumble to temporary factors.

“The severe winter weather in some regions had reportedly weighed on economic activity, and the labor dispute at West Coast ports temporarily disrupted some supply chains,” the minutes said.


Furthermore, a pattern observed in previous years of the current expansion was that the first quarter of the year tended to have weaker seasonally adjusted readings on economic growth than did the subsequent quarters. This tendency supported the expectation that economic growth would return to a moderate pace over the rest of this year.”

However longer-term factors might also be at play weighing on growth.

“A number of participants suggested that the damping effects of the earlier appreciation of the dollar on net exports or of the earlier decline in oil prices on firms’ investment spending might be larger and longer-lasting than previously anticipated,” the minutes said.

Since the April meeting, Fed officials have confronted a mix of economic data. Though job growth picked up in April and the jobless rate declined, some indicators of economic output—including industrial production and retail sales—have been disappointing. In the process many private forecasts have revised down their estimates for second-quarter growth.