US Economy
Fed minutes raise doubts about fragility of US recovery
By Michael Hennigan, Finfacts founder and editor
May 21, 2015 - 8:20 AM

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Janet Yellen, chair of the US Federal Reserve

Minutes released on Wednesday of the April policy meeting of the Federal Reserve indicate concerns about the fragility of the US recovery, which signalled that the expected first rise in the US federal funds rate — the benchmark rate — in June from near-zero levels, will not happen.

Minutes from the meeting on April 28-29 reveal that the Federal Open Market Committee was divided over when the rate change will happen, showing a " range of views” were expressed. Many officials “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,” the minutes said.

“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 added. “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.”

GDP had barely grown in the first quarter while industrial production fell and employment growth was weak.

Fed staff forecasts show expected real GDP growth in the first half of the year lower than in the projection prepared for the March meeting. However, the Fed says that the medium-term projection for real GDP growth was revised up modestly, as monetary policy was assumed to be a little more accommodative in this projection and the projected path for the foreign exchange value of the dollar was a little lower. "The staff continued to project that real GDP would expand at a faster pace than potential output in 2015 and 2016, supported by increases in consumer and business confidence and a small pickup in foreign economic growth, even as the normalization of monetary policy was assumed to begin."

Since the meeting, the Commerce Department reported last week that the level of retail sales was unchanged in April while GDP was reported to have grown at an annual rate of 0.2% in Q1 Some Fed officials signalled worry about the slowdown, particularly in consumer spending, which has been viewed as a bright spot in the current economic expansion.

“Their expectations of a moderate expansion of economic activity in the medium term, combined with further improvements in labor market conditions, rested largely on a scenario in which consumer spending grows robustly despite softness in other components of aggregate demand,” the minutes reported.

The Wall Street Journal says: "Though job growth picked up in April and the unemployment rate declined to 5.4%, several indicators of economic output — including industrial production and retail sales — have been disappointing.

In the process, many private forecasters have revised down their estimates for second quarter growth.

The confounding data point to a disconnect that puzzles some Fed officials. Though the economy is generating jobs and income for workers, it isn’t translating into much pickup in spending or investment. And inflation has been below the central bank’s 2% target for nearly three years."

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