Fed officials divided in July over interest rate hike

US Federal Reserve officials were divided last month over the urgency to raise interest rates again, with some preferring to wait because inflation remained benign and others wanting to go soon as the labour market nears full employment.

Such divergence in views, as shown in minutes of the central bank’s July 26th-27th meeting issued on Wednesday, means officials are likely to need more concrete evidence that inflation is picking up and economic growth is strengthening before deciding that an increase in borrowing costs is justified.

Investors will listen closely for additional clues on timing when Fed chair Janet Yellen speaks August 26th at an annual symposium hosted by the Kansas City Fed in Jackson Hole, Wyoming.

“Several suggested that the committee would likely have ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 per cent on a sustained basis,” according to the records of the policy meeting, released in Washington.

The report contained no explicit reference to the timing of the next potential interest-rate increase, beyond noting that a “couple” of officials were advocating one in July. Some voting members “anticipated that economic conditions would soon warrant taking another step in removing policy accommodation,” the minutes said.

“There certainly is a lack of consensus,” said Millan Mulraine, deputy head of US research and strategy at TD Securities in New York. “For the Fed to move there has to be a much broader consensus than we see right now.”

At its July meeting, the Federal Open Market Committeeleft the benchmark interest rate in a range of 0.25 per cent to 0.5 per cent while noting that “near-term risks to the economic outlook have diminished” and that June’s strong job gains followed a weak May.

Bloomberg