Fed minutes reveal, officials want to wait now – raise later

During the March 20 meeting held by members of the Federal Open Market Committee, there was an undisputed public call for patience; however, according to a more comprehensive report published Wednesday, opposing opinions were observed.

Based on the minutes, some members suggested that their opinions concerning the right target range about the federal money rate might tend toward any of the two directions according to the received data and other developments.

Concern regarding the U.S. housing market

The minutes also revealed that within the housing sector, continued softness was an apparent issue. A separate report released by NAR 48 hours after the Fed meeting showed that after rates started to drop during the early days of 2019, the market rebounded. The Realtors Association reported existing home sales in February also witnessed the highest month-over-month rate of growth since December 2015.

Some members fear for housing affordability

The minutes declared that real residential funding seems to be softening more in the first three months, which tends to reveal, in part, a reduction in housing affordability.

Key members suggested that later in 2019, an increase in the benchmark rate might be appropriate, provided the current economic expansion is sustained beyond its longer-run trend rate. A few FOMC members equally shared the belief that U.S. GDP would likely bounce back significantly in the second quarter, after the lesser than expected GDP growth the first three months of this year.

Chart of Federal funds rate projections according to the March 2019 FOMC minutes.

The minutes showed that most participants expected economic conditions, as well as the risks of the outlook, would lead to maintaining the target range for the remainder of the year. Some members opined that if the economy should change beyond its longer-run trend rate, a call to raise the target range of the federal funds rate near the end of the year may be prudent.

After the Fed’s March meeting, they confirmed that their holding of Treasury bonds would witness a gradual monthly reduction from close to $30 billion to about $15 billion starting from May, which verifies the plan to finalize their current balance sheet runoff by September, provided economic conditions continue as planned.