Leading up to the release of the April minutes, the bond market positioned itself for a potential rate hike in June. As the below chart shows, from the beginning of April through the market close on May 19th, treasury bond ETFs sold off significantly. The aggregate bond index was also a weak performer and traded down nearly 2%. Stocks (S&P 500 Index) on the other hand have generated a positive 3.2% return since April 1st.
The
Fed minutes noted the recently mixed economic data as a probable reason why the Fed is likely not inclined to increase interest rates in June. Additionally, noted in the minutes was the negative impact a strengthening U.S. Dollar is having on U.S. economic activity.
The stronger Dollar has a negative impact on U.S. exports as U.S goods become more expensive outside the U.S. as the Dollar does strengthen. Also noted in the minutes was the counter impact of the improving economic growth picture in a number of countries outside the U.S. The stronger growth, ex-U.S., could be attractive to U.S domiciled firms as their products may be in greater demand. The stronger Dollar is acting as a tightening influence and may actually be doing some of the Fed’s tightening work; however, the Fed does need to get rates back to a more normalized level sooner versus later.