​Fed meeting minutes reveal a raft of worries

WASHINGTON - Federal Reserve policymakers last month were unsure about the outlook for the U.S. economy because of a sharp slowdown in job growth and the potential threat posed by a vote in Britain over leaving the European Union.

Minutes of the June 14-15 Federal Open Markets Committee (FOMC) discussions released Wednesday show a general consensus to hold off on further rate hikes until data could show whether the weak job growth in May was a temporary aberration.

"Almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labor market," the minutes said.

Policymakers also agreed they needed to wait for the outcome of the British vote.

Britain ended up voting to exit the EU. The decision triggered sharp turbulence in markets around the world and has likely deepened caution among Fed policymakers. Many economists believe the Fed may only hike its benchmark interest rate just once this year.

At its meeting, the Fed decided by a 10-0 vote to leave its key policy rate unchanged in a range of 0.25 percent to 0.5 percent. It's been at that level since December, when the Fed boosted it from a record low near zero.

At the time, the Fed projected that it expected to raise rates another four times in 2016. But the year began with turbulence in financial markets, stemming from concerns over China. That led the Fed to trim its forecast in March to an expectation for only two rate hikes this year.

The release of the minutes of the April meeting, however, suggested that the Fed's first rate hike this year could occur at the June meeting. That prospect fizzled after the May jobs report showed the creation of just 38,000 jobs, the lowest number in five years.

The government's next jobs report will be issued on Friday, July 8. Economists are forecasting a more robust 160,000 new jobs in June.

The Fed's next meeting will take place the last week in July. But many analysts think a good jobs report won't be enough to convince policymakers to raise rates then either, especially in light of the uncertainty triggered by the Brexit vote. Some analysts think the Fed could hold off raising rates until September or possibly even wait until its last meeting of the year in December.

The FOMC meeting minutes also underscored questions about prolonged softness in business investment spending. Fed officials attributed much of the weakness to the big plunge in oil prices, which had triggered cutbacks at energy companies.

But officials also discussed other possible reasons, including a slowdown in corporate profits and "heightened uncertainty regarding the future course of domestic regulation and fiscal policies," an apparent reference to business concerns about what will happen to government policy following the November elections.

The minutes showed Fed officials were closely watching the vote in Britain, which occurred eight days after the Fed meeting. Markets around the world plunged sharply in the first days following the June 23 vote but have mostly rebounded since that time.

"Most participants noted that the upcoming British referendum on membership in the European Union could generate financial market turbulence that could adversely domestic economic performance," the minutes said.

In addition to worries about Britain and the EU, some officials expressed concerns about uncertainties surrounding China's future moves in managing its currency and the impact of relatively high levels of debt on the Chinese economy.

Among economists' reactions to the FOMC meeting minutes was Ian Shepherdson's "one line" assessment. The Pantheon Macroeconomics chief economist put it this way: "No hike until markets calm, wage gains pick up, and payrolls rebound."

At BMO Capital Markets, Deputy Chief Economist Michael J. Gregory pretty much agreed. "Between waiting for at least a couple of months of improved employment reports (to counter the past two) along with waiting to get a proper bead on Brexit repercussions (likely requiring even more time than the next couple of months), the FOMC looks to be on hold for most of the remainder of this year," he said. "The one-and-done-in-December rate hike scenario looks most plausible at this point."

Fitch Ratings Chief Economist Brian Coulton put it this way: "With the Brexit vote, a key global risk identified by the Fed has become a reality. Along with the recent poor jobs numbers this will see the Fed sitting tight until late 2016."