FOMC meeting minutes raise doubts of September rate hike, dollar falls

Federal Reserve policymakers widely agreed last month the economy was nearing the point where interest rates should move higher, but worried lagging inflation and a weak global economy posed too big a risk to commit to “liftoff.”

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.

The minutes did not make an overt reference to a possible September 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.

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