On Wednesday, the Fed released the minutes from their latest meeting. The commentary was generally upbeat. Participants viewed the labor market favorably, citing low unemployment, improving labor force participation and several anecdotal sources for support. And while overall PCE inflation was 1%, the core rate was approaching their 2% target. This combination led to this key conclusion:

Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June. 

But the committee’s economic analysis and projections were not universally bullish. The strong dollar, weak oil prices and soft international environment led to a second consecutive quarter of contracting business investment. Moreover, some participants viewed risks to growth and inflation as tilted toward the downside. Others expressed concern about potential international fallout associated with the UK’s upcoming “Brexit” vote or China’s handling of monetary policy. Still, the narrow parameters of the Fed’s dual mandate (maximum employment and price stability) granted the Fed sufficient latitude to argue for a June rate hike.     

SF President Williams gave an upbeat speech earlier this week.He argued poor seasonality adjustments again caused a weak first quarter GDP reading.His staff used a second set of seasonal adjustments and arrived at a 2% 1Q growth rate. The 5% unemployment rate, positive JOLTS survey quits level, and recently rising labor force participation rate support his positive labor market assessment. And using the recent 1.6% core PCE inflation rate and the 1.8% trimmed mean CPI as support, he argued inflation was moving closer to the Fed’s 2% target.