Federal Reserve officials felt the U.S. economy could be ready for another interest rate increase in June, according to the minutes from the central bank's April policy meeting released on Wednesday.
Most participants in the policy-setting committee's April 26-27 meeting said they wanted to see signs that economic growth was picking up in the second quarter and that employment and inflation were firming, the minutes showed.
"Then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June," according to the minutes.
The suggestion that a rate increase in June is firmly on the table suggests the Fed is closer to tightening monetary policy again than Wall Street had expected. The Fed lifted rates in December for the first time in nearly a decade.
Prices for futures contracts on the Fed's benchmark overnight lending rate implied that investors saw a 34 percent chance of a rate increase next month, up from 19 percent shortly before the release of the minutes, according to CME Group.
U.S. stocks fell and the dollar extended gains against a basket of currencies after the minutes were released. Treasury yields rose, with the yield on 30-year U.S. government debt rising to a two-week high.
"They are ready to pull the trigger on a rate increase in June," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
ROBUST JOB GROWTH
Recent data has made policymakers more confident that inflation is rising toward the Fed's 2 percent target and they also expressed fewer concerns about a global economic slowdown, according to the minutes.
Some policymakers at the meeting were worried about a slowdown in U.S. economic growth during the first quarter, when gross domestic product expanded at an annual rate of 0.5 percent, a two-year low.
But others argued that ongoing robust job growth suggested the economy had not gone off the track and that the growth data could be flawed.
"Most pointed to the steady improvement in the labour market as an indicator that the underlying pace of economic activity had likely not deteriorated," according to the minutes.
Data since the end of April has pointed to a pickup in consumer spending and manufacturing output, bolstering the view that economic growth was accelerating after stalling in the first quarter. Several Fed officials in recent weeks have stressed that a rate increase might be warranted in June.
Some policymakers at the April meeting said they were concerned financial markets could be roiled by a possible British exit from the European Union in a vote next month or by China's exchange rate policies.
The Fed last month kept its target overnight interest rate in a range of 0.25 percent to 0.50 percent.
A global equities sell-off and the tightening of financial markets earlier this year largely due to concerns of a slowdown in China prompted the Fed in March to dial back rate increase expectations for the year.
Even so, the Fed signalled at that time that it would likely lift rates twice this year. Investors have been betting on just one hike.