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 Only one Fed policymaker was ready to vote for a rate hike at the
central bank's July 28-29 policy meeting, while some others "viewed
the economic conditions for beginning to increase the target range
for the federal funds rate as having been met or were confident that
they would be met shortly," according to minutes from the meeting
released on Wednesday.
"Most judged that the conditions for policy firming had not yet been
achieved, but they noted that conditions were approaching that
point," the minutes said.
That sentiment, combined with a broader recognition among "many
members" that full employment was close, led the Fed to say in its
post-meeting statement that it only needed to see "some" more
improvement in labor markets before hiking rates.
But that feeling was offset by apparently widespread concern about
weak inflation, tepid wages, and the fact that a six-year recovery
had not moved inflation nearer to the Fed's 2 percent inflation
target.
"Almost all members ... would need to see more evidence that
economic growth was sufficiently strong and labor market conditions
had firmed enough for them to feel reasonably confident that
inflation would return to the committee's longer-run objective over
the medium term," the minutes said.
The Fed has said it wants to be "reasonably confident" in the
inflation outlook before a rate hike.
Yields on long-term U.S. government bonds fell, U.S. stocks pared
losses and the dollar weakened after the release of the minutes,
suggesting investors saw them as an indication the Fed would be
cautious about hiking rates.
The minutes, however, reflected a now month-old snapshot of Fed
opinion, with the data since that meeting having shown steady job
growth and an uptick in consumer spending and housing that confirm
the central bank's view of a growing economy.
"The overall message of the minutes is: 'we are getting there,'"
wrote Harm Bandholz, chief U.S. economist for UniCredit Research.
The minutes did not make an overt reference to a possible September
rate hike.
SETTING THE TABLE
Several Fed policymakers have said publicly they felt a rate hike
will likely be justified next month, though they are monitoring jobs
and other data closely.
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In the over-the-counter market, three-month overnight indexed swap
rates implied traders now see a 35 percent chance of the Fed hiking
rates in September, compared to 46 percent late on Tuesday,
according to data from inter-dealer broker Tullett Prebon.
Though the initial hike will have little impact on consumer or
business borrowing rates, which have already risen, it will still
mark the start of a process that gradually makes it more expensive
to buy homes and cars, or fund a vacation on the credit card.
But the discussion at the Fed's July meeting seemed to set the table
for that eventuality. It began discussing the mechanics of how to
end its current policy of reinvesting the proceeds of maturing bonds
and other assets purchased by the central bank during three rounds
of a stimulus program known as quantitative easing.
The Fed has pledged not to reduce its asset holdings until after it
begins raising rates.
Policymakers also took steps to clean up their quarterly
presentation of economic forecasts, notably by agreeing that once
they begin raising rates they will no longer need to publish an
existing chart indicating the year in which officials think rates
will rise.
That particular graph had become very lopsided: as of June, 15
members said they felt the rates "liftoff" would occur this year,
with only two expecting it in 2016.
(Reporting by Howard Schneider; Editing by Paul Simao)
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