After holding rates unchanged at the March meeting, the minutes suggest that rates will probably remain at current level also at the April meeting; various views emerged but several argued against hiking rates in April while some favored it. While only Esther George dissented in favor of hiking rates in March already, according to the minutes it was actually a couple that wanted to hike in March already. But the cautious approach to raising rates prevailed and many participants said it was prudent to wait before taking the next tightening step. First and foremost, it is the uncertainty around the global economic backdrop that is preventing policy action at the moment; many on the FOMC saw bigger global risks.
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The tightening in financial conditions seen in January and February has been fully reversed since, but a number of participants still judged that headwinds will subside only slowly. What the Fed wants to see is better growth before the next tightening step. But with indicators such as ISM manufacturing going up, US economic growth will surely follow suit given the strong labor market backdrop. In our view, one should appreciate that the Fed truly is data-dependent and as such future market pricing seems to be taking the Fed dovishness to extremes; according to these futures it is almost like a toss of a coin now if the Fed is going to hike again in 2016 or not. We still expect a September hike