‘Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point, ‘ the minutes, released on Wednesday, said.
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At the same time, “some” officials said economic reports had not yet provided the central bank the “reasonable confidence” it has been seeking that inflation will drift toward the Fed’s annual 2% target over the medium-term.
Most economists expect that rates, which have been held at near-zero since the 2008 financial crisis, will be raised at the Fed’s next policy meeting on 16-17 September. There has not been an increase in the Fed’s interest rate since June 2006.
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. And although it has stalled in the past few months as mixed US data and worries over global growth have pushed back expectations of when that hike will come, most investors now reckon that the Fed “lift-off” will come by the end of the year, perhaps as soon as September.
The Fed has set a 2.5 percent inflation rate as one of the earmarks for a rate increase, along with a 6 percent unemployment rate that has long since been eclipsed.
As an erratic Chinese stock market stoked fears about the stability of the world’s second-largest economy, investors sought refuge in the safe-haven Swiss franc, which hit its highest level for nearly two weeks against the euro.
China’s economic slowdown and its impact on the U.S. economy are worrying some Fed committee members.
But analysts at Citigroup see China’s competitive devaluation as nothing more than a sideshow.
The July meeting occurred before China devalued its currency, and before its stock market continued its plunge. The headline CPI also received a boost in June from a rise in energy prices, which increased by 1.7% for the month. A stronger dollar can act as a drag on the U.S. economy by expanding America’s trade deficit, as U.S. exports become less competitive in overseas markets and foreign goods take greater market share in the United States.
OIL: Benchmark U.S. crude dropped $2.01 to $41.12 a barrel in electronic trading on the New York Mercantile Exchange.
Fed officials also noted that the job market still had room for improvement, particularly on the wage front.
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Major indexes had fallen more than 1 percent in late morning trading but the Nasdaq and Dow industrials briefly turned positive after the release of the Fed minutes. RBS said futures pricing after the minutes release cut that probability to 36 percent, with the higher likelihood now coming in January. WASHINGTON – The International Monetary Fund says it has extended by nine months the scheduled revision of its elite currencies basket, giving more time for adjustment to the potential inclusion of China’s yuan.
