The Federal Reserve on Wednesday released minutes from its meeting at the end of July, and it looks like Fed officials broached the subject of raising interest rates earlier than planned, but ultimately decided to wait for more evidence of an improved economic outlook.
The minutes are from the July 29-30 meeting where the Fed decided to slim down its monthly asset-purchasing program, or quantitative easing, by $10 billion to bring it down to $25 billion per month.
The notes from the meeting show that a number of Fed officials feel that interest rates could begin to be raised from their current artificially low levels sooner than the current target of sometime in 2015 should certain economic factors continue to improve at a rapid pace. The Fed has specifically been encouraged by the continued decline of the unemployment rate and the fact that the inflation rate is closer to the Fed’s 2% goal. (The unemployment rate was 6.2% in July, which is down from 7.3% during the same month last year.)
Officials at the July meeting were divided over whether it would be appropriate to hasten the lifting of interest rates should the economy continue meeting the Fed’s goals. In fact, the minutes note that “some participants viewed the actual and expected progress toward the [Fed’s] goals as sufficient to call for a relatively prompt move toward reducing policy accommodation to avoid overshooting the [Fed’s] unemployment and inflation objectives over the medium term.”
However, the majority of officials at the meeting clearly felt that any rate hikes could wait until next year, with the Fed continuing to monitor a variety of economic factors in the meantime. The minutes note that “most participants indicated that any change in their expectations for the appropriate timing of the first increase in the federal funds rate would depend on further information on the trajectories of economic activity, the labor market, and inflation.”
Those officials showed some concern over the U.S. economy’s contraction in the first quarter, though they admitted it was likely temporary, and they also wanted to wait for more information on the labor market. Other possible factors that officials said could negatively affect the economic outlook included “persistent weakness in the housing sector, a continued slow rise in household income, or spillovers from developments in the Middle East and Ukraine.”
Talk of rate hikes are in the air Wednesday after minutes from the Bank of England’s last meeting showed two out of nine board members voted for a rate hike as early as this month, the first time in three years that policymakers have done so.
U.S. markets remained relatively steady following the release of the Fed’s minutes as investors continue to seek out signs indicating when the Fed plans to raise interest rates. Market-watchers will get another opportunity to suss out clues later this week when Fed chairwoman Janet Yellen makes her planned speech at the annual Jackson Hole monetary policy symposium, where this year’s theme, appropriately, focuses on the labor market.
