Investors also learned for the first time on Wednesday how the central bank is likely to reduce its holdings of more than $ 4 trillion in Treasury and mortgage-backed securities. A reduction of those holdings would be the last step in the Fed’s retreat from its economic stimulus campaign. The account of the May meeting reiterated that the Fed would probably begin taking that step later this year.
The Fed raised its benchmark rate in March to a range between 0.75 percent and 1 percent, the third increase since the 2008 financial crisis. Rates remain at a low level that supports economic growth by encouraging borrowing and risk-taking. The Fed is gradually reducing those incentives by raising rates because it believes the economy is expanding at roughly the maximum sustainable pace.
Although the Fed left the rate unchanged this month, its statement after the meeting was widely interpreted as setting the stage for a rate increase because of its reference to slow growth in the first quarter as “likely to be transitory.”
The account of the May meeting, published by the Fed after a standard three-week delay, generally reflects that optimism, describing most officials as ready to raise rates “soon,” provided the economy shows signs of the expected rebound. But the minutes also offered an unexpected note of caution.
“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 account said, referring to the members of the Federal Open Market Committee, which determines monetary policy.
The account noted that job growth remained strong, and it described anecdotal evidence of a tightening labor market, including companies’ raising wages and investing in training programs. It also noted that the global economy, a drag on domestic growth in recent years, was showing signs of renewed strength.
The continuing decline in the unemployment rate is likely to weigh in favor of raising rates more quickly. The May minutes also noted that financial conditions had loosened since the last rate hike. Borrowing costs have declined since March, and the dollar has weakened, the opposite of what the Fed had intended.
Before the release of the minutes, the chances of a June rate increase stood at 78.5 percent, according to a measure derived from asset prices by CME Group; by the end of Wednesday, the chances were 83.1 percent.
The account of the meeting also noted that the government had regularly reported slow winter growth in recent years, and there was some evidence to suggest that the problem was not the economy but the methodology.
But inflation has increased more slowly than the Fed had hoped it would at the beginning of the year, remaining below the 2 percent annual pace that policy makers regard as healthy. The share of Americans who are working also remains significantly lower than before the recession. Some Fed officials see the combination as evidence that the economy is still benefiting from low interest rates.
Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said Monday that he still expected the Fed to raise rates twice more this year.
“I intend to be patient in critically assessing upcoming data to evaluate whether we are continuing to make progress in reaching our inflation objective,” Mr. Kaplan wrote in a paper on current policy.
The plan to reduce the Fed’s asset holdings, which help to hold down borrowing costs, was presented by Fed staff members, and the minutes said it was viewed favorably by “nearly all” of the board’s policy makers.
The Fed plans to reduce its holdings without selling securities. Instead, as securities mature, the Fed will keep the proceeds rather than following its current policy of investing in new securities.
Under the proposed plan, the Fed would begin by keeping a fixed amount of the monthly proceeds and then increase the cap every three months until proceeds were no longer being reinvested. The schedule, including the caps, would be detailed in advance.