It's Go Time for an Interest Rate Increase. Again.

The Federal Reserve Bank in Washington DC

WASHINGTON, DC—Minutes from the April policy meeting of the Federal Reserve Bank released on Wednesday show a Central Bank that could well wind up raising interest rates at its next meeting in June, despite its so-called dovish approach to date. “Be forewarned,” Savills Studley’s Chief Economist Heidi Learner wrote in a client note. “Today’s Fed Minutes sounded an explicit warning that a June rate hike is a live possibility should future data echo recent trends.” The policy-makers discussed the likelihood that the US economy was stronger than recent indicators, including the first quarter GDP , had suggested. They also concluded that the risk associated with the turmoil in the global markets had receded. According to the minutes:

Participants … discussed a number of factors suggesting that the apparent softness in spending in the first quarter was unlikely to persist. Most pointed to the steady improvement in the labor market as an indicator that the underlying pace of economic activity had likely not deteriorated as much as was suggested by the recent data on spending and production. Notably, solid job gains and real income growth, along with a high level of household wealth and relatively upbeat consumer sentiment, were expected to support a pickup in consumer spending after its slowdown in the first quarter.

The Fed also discussed the risk of confusing the market by not raising rates after it said it would.

Some participants saw limited costs to maintaining a patient posture at this meeting but noted the risks–including potential risks to financial stability–of waiting too long to resume the process of removing policy accommodation, especially given the lags with which monetary policy affects the economy. A couple of participants were concerned that further postponement of action to raise the federal funds rate might confuse the public about the economic considerations that influence the Committee’s policy decisions and potentially erode the Committee’s credibility.

There’s Always Wiggle Room The minutes also provided enough wiggle room, or call it cover, if the Fed decides to hold off once again in June. Great Britain’s so-called Brexit vote would be an excellent excuse, Learner wrote. “Should the Fed decide against tightening policy at its June 14th-15th meeting, the uncertainty surrounding the Brexit vote provides a convenient rationale for a further ‘wait and see’ approach by the Fed, since Britain’s vote is scheduled just 8 days later,” she wrote. And indeed, the minuted included this:

Some participants noted that global financial markets could be sensitive to the upcoming British referendum on membership in the European Union.

Learner and the market in general, however, is now leaning to a June increase. “Even those FOMC members who weren’t ready for a hike in April suggested that the current course of data would be consistent with a June move,” she wrote. “Expect to see the market pricing in even more of a chance of a June hike: already, the probability of a June rate increase has moved from 12% to 32% just on the day, according to pricing from Fed Fund futures.”