Minutes Show Division At Fed Over Raising Rates

WASHINGTON—The minutes of the Federal Open Market Committee’s July meeting show divisions within the committee on how plans to raise interest rates should be tied to data.
“The FOMC minutes continue to reflect divisions within the committee,” NAFCU Chief Economist and Director of Research Curt Long said. “The constant refrain of ‘data dependency’ from Fed officials loses its meaning when there is no consensus on what the data means, much less which policy course is warranted.
“Nevertheless, it seems safe to say that many of the committee’s fears were alleviated with the strong June jobs report and by Brexit’s lack of impact on financial markets,” Long continued. “With inflationary pressures yet to emerge, the Fed seems happy to play the waiting game as far as rate normalization is concerned. As a result, we anticipate no rate hike until December or later.”
Long noted that some FOMC members believe that allowing labor market conditions to tighten too much could lead to a build-up of inflationary pressure, forcing the Fed to increase interest rates rapidly. Others believe inflation is still too far below the Fed’s 2% goal and that the committee should delay a rate hike until they are more confident about inflation’s progress.
Futures company CME Group currently estimates the odds of at least one rate hike in 2016 at 50%, NAFCU reported. The FOMC’s next two-day meeting is set for Sept. 20-21.
The Fed’s last rate action was in December 2015, when it raised the federal funds target rate increase a quarter point to a range of 0.25% to 0.5%.