New Doubts for US Central Bankers

The minutes of the April meeting of the Fed’s monetary policy committee (FOMC) shows a determination that blunts on the need to raise interest rates quickly.
The press release issued at the end of the April meeting had already the message that nothing will be done in June. The minutes have confirmed this point.
After June, the perception is fuzzier.

  • First because the economic situation may have changed; growth will be lower this year than what was expected at the beginning of the year. But we don’t know yet if this slowdown is temporary or permanent. And FOMC members do not know either, even if they expect a mild rebound.
  • Second because the methodology has changed at the Federal Reserve. FOMC members will analyze the situation, meeting after meeting. Their analysis will be data dependent. Moreover, the FOMC doesn’t give guidance anymore. This new methodology is almost easy to manage when data are strong and the future is not too uncertain.

But in the current situation, the methodology implies that the Fed doesn’t give information because there is a large uncertainty on the economic profile. This creates a weird situation, a kind of emptiness, that is not comfortable. No elements can give the clue for the future date for a lift-off of interest rates.

For a long time I have thought that there is no necessity to rush in the lift-off of interest rates. These minutes go in my sense by saying that they can’t fix a date. The activity is sluggish, there is no inflation and the dollar is still strong. Why rush?

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