The Federal Reserve Building (Karen Bleier/AFP/Getty Images)

More than six years after slashing its benchmark interest rate to zero, the Federal Reserve is widely expected to start raising it again this year. But disappointing economic growth, persistently low inflation and a slowing job market have cast doubt on the timing. Documents detailing the Fed’s most recent policy-setting meeting in Washington in April show officials grappling with more questions than answers and underscore the uncertainty that remains in any forecast for the recovery. Here are the most important things they discussed:

June is (basically) off the table
The April meeting minutes confirmed what the market has already deduced: A June rate hike is highly unlikely.

A few anticipated that the information that would accrue by the time of the June meeting would likely indicate sufficient improvement in the economic outlook to lead the Committee to judge that its conditions for beginning policy firming had been met. Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.

A warning before liftoff?
After dropping the vow to be “patient” in raising rates in March, Fed officials have said that they will decide at each meeting whether the time is right for liftoff. But the minutes show they at least considered providing an explicit warning before the first rate hike before the idea was nixed. Looks like forward guidance is headed back into the toolbox.

Participants discussed the merits of providing an explicit indication, in postmeeting statements released prior to the commencement of policy firming, that the target range for the federal funds rate would likely be raised in the near term. However, most participants felt that the timing of the first increase in the target range for the federal funds rate would appropriately be determined on a meeting-by-meeting basis and would depend on the evolution of economic conditions and the outlook. In keeping with this data-dependent approach, some participants further suggested that the postmeeting statement’s description of the economic situation and outlook, and of progress toward the Committee’s goals, provided the appropriate means by which the Committee could help the public assess the likely timing of the initial increase in the target range for the federal funds rate.

The many faces of disappointing Q1 growth
Officials searched for an explanation for why growth flatlined during the first quarter. In April, at least, officials seemed confident that the slowdown was temporary.

Most notably, the severe winter weather in some regions had reportedly weighed on economic activity, and the labor dispute at West Coast ports temporarily disrupted some supply chains. Furthermore, a pattern observed in previous years of the current expansion was that the first quarter of the year tended to have weaker seasonally adjusted readings on economic growth than did the subsequent quarters. This tendency supported the expectation that economic growth would return to a moderate pace over the rest of this year. Participants also pointed to other reasons for anticipating that the weakness seen in the first quarter would not endure.

Wither the consumer?
But there were emerging fears that the slowdown could infect the second quarter, as well. And in fact, many economists are now lowering their projections for growth this quarter. One of the main culprits? Consumer spending.

A number of participants suggested that the damping effects of the earlier appreciation of the dollar on net exports or of the earlier decline in oil prices on firms’ investment spending might be larger and longer-lasting than previously anticipated. In addition, the expected boost to household spending from lower energy prices had apparently so far not materialized, highlighting the possibility of less underlying momentum in consumer expenditures than participants had previously judged. Some participants expressed particular concern about this prospect, as their expectations of a moderate expansion of economic activity in the medium term, combined with further improvements in labor market conditions, rested largely on a scenario in which consumer spending grows robustly despite softness in other components of aggregate demand.  

The push from the doves
At least two officials, Chicago Fed President Charles Evans and Minneapolis Fed President Narayana Kocherlakota, have argued that the central bank should not raise rates until next year, citing the low level of inflation and concern that the recovery is not fully rooted. The Fed’s own estimates of the proper interest rate for a well-oiled economy have drifted down along with their expectations of how fast the economy can grow. During the April meeting, the doves took particularly vocal positions. The officials are unnamed, but we can take a pretty good guess at who they might be.

Estimates of such equilibrium real interest rates were highly uncertain, but some participants reported that their estimates were currently unusually low by historical standards, reflecting, for example, factors weighing persistently on aggregate demand. In light of their low estimates, a few of these participants questioned whether the Committee was providing sufficient accommodation at the present time and cautioned against initiating policy firming in the near future. However, other participants cited factors, including the current low level of term premiums, that might cast doubt on the notion that the equilibrium real federal funds rate was particularly low. Some participants observed that more discussion of this topic was likely to be helpful in assessing these issues. One participant suggested that, in part because of the evidence that the equilibrium real interest rate was low by historical standards, the Committee should discuss the possibility of increasing its longer-run inflation objective. This participant and a few others thought such a discussion could be useful but emphasized that any decision to change the Committee’s longer-run goals and policy strategy should not be made lightly.