Fed: First rate hike ‘approaching’

August 19 23:42 2015

Federal Reserve policymakers said last month they were “approaching” the central bank’s first interest rate hike in nearly a decade but needed to see further improvement in the economy and labor market, according to minutes of the Fed’s July 28-29 meeting. Several Fed officials also expressed particular concerns about stubbornly low inflation and the possibility that it may not accelerate even as slack, or excess supply, in the economy diminishes.130130035540-federal-reserve-building-monster

The meeting summary provides a no clear signal of when the Fed will raise its benchmark rate for the first time in nearly a decade, though many economists expect it will act at its September 16- 17 meeting. The minutes portray a Fed eager to raise rates amid steady job growth and a near-normal 5.3% unemployment rate, but hesitant to make a premature move that derails the recovery, especially with inflation still weak.

Most Fed policymakers “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” the minutes said. 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.

Normally, a lower unemployment rate, for example, means fewer available workers, forcing employers to raise wages. But, “several members noted that higher rates of resource utilization appear to have had only very limited effects to date on wages and prices.” These policymakers “cited evidence” that the response of inflation to reduced slack in the economy “might be attenuated and expressed concern about risks of further downward pressure on inflation from international developments.”

Economic turmoil in the euro zone and China has strengthened the dollar, making imports cheaper for US consumers and keeping inflation below the Fed’s target. And the Labor Department reported earlier Wednesday that consumer prices rose 0.1% in July, less than economists expected, though inflation rose more sharply the prior two months.

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