Fed to raise rates very soon, again

The account of the Federal Reserve’s early May meeting, which the Fed published Wednesday, suggested the decision to raise interest rates in June still hangs in the balance.

“Members generally judged that it would be prudent to await additional evidence indicating that the recent slowdown in the pace of economic activity had been transitory before taking another step in removing accommodation,” the Fed said in an account, released after a standard three-week delay.

The account also described in some detail a potential plan for reducing the Fed’s asset holdings and it reiterated that “it likely would be appropriate” to begin that process by the end of the year.

That sentiment was widely expected by investors, who have already been betting that there is about an 80% chance of a June rate hike.

Fed officials remained optimistic about the economic outlook, and in particular that they expected a rebound in consumer spending, according to the account. That was in keeping with the Fed’s policy statement after the May meeting, which said the first-quarter slowdown “was likely to be transitory.”

Fed officials also indicated that they would likely start to wind down its $4 trillion balance sheet this year. The Fed bought trillions of dollars in debt during the housing and financial crisis and the recession that followed to help the economy recover. The officials say they want to raise rates a little more before they start selling that debt.

The Fed has hiked the rate three times since December 2015 and economists and Wall Street strategists widely expect at least two more moves before the end of 2017.

Investors will get a closer look at behind-the-scenes discussion when the Federal Open Market Committee on Wednesday releases the minutes from its meeting earlier this month.

"We continue to expect the Fed to hike in June and September and announce balance sheet reduction in December," Citigroup economist Andrew Hollenhorst said in a note. "The drama at the June meeting may not be whether the Fed raises rates but what changes in the Fed official economic projections."