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US interest rate forecast to increase in June

Published 18/05/2016

The Fed boosted its key rate by a quarter-point in December, and another increase looks to be on the cards in June (AP)
The Fed boosted its key rate by a quarter-point in December, and another increase looks to be on the cards in June (AP)

US Federal Reserve officials believe an interest rate hike is likely to be agreed at the central bank's next meeting in June if the country's economy keeps improving.

Fed officials decided against raising rates at its April meeting, but minutes of that gathering show there was a widely held view that it "likely would be appropriate" to raise rates at the June 14-15 meeting as long as the economy and labour markets continue to strengthen and inflation shows signs of accelerating.

The minutes, released after the customary three-week lag, were for the meeting of April 26-27. The Fed voted 9-1 to leave interest rates unchanged at that meeting while noting waning threats from the global slowdown.

The Fed boosted its key rate by a quarter-point in December and indicated at the time that it expected to move rates up four times in 2016.

But financial market turbulence in January, sparked by an unexpectedly sharp slowdown in China and weakness in the US economy during the first three months of this year, has kept the Fed on the sidelines.

It passed up chances to boost rates at its meetings in January, March and April. And in March, it signalled that it was reducing from four to two the number of rate hikes it expects to make this year.

While many private economists believed the Fed would remain on hold at the next meeting on June 14-15, recent developments have called that view into question.

Inflation, as measured by the consumer price index, rose by 0.4% in April, although much of that gain reflected a rebound in energy prices. But other indicators show the economy seems to be recovering after nearly stalling out in the first quarter, when growth slowed to an annual rate of just 0.5%.

In remarks this week, three Fed officials raised the prospects of a June rate hike.

John Williams, president of the Fed's San Francisco regional bank, called June a "live" meeting, while Atlanta Fed president Dennis Lockhart said of the possibility of a June hike, "I wouldn't take it off the table".

Robert Kaplan, president of the Fed's Dallas regional bank, said on Tuesday that "in the not-too-distant future", the Fed should be raising rates.

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