WASHINGTON, D.C.: Federal Reserve policymakers favored caution last month about raising interest rates as they weighed weak spots in the economy and foreign risks, minutes to the meeting showed on Wednesday (Thursday in Manila).
Participants at the June 16 to 17 Federal Open Market Committee (FOMC) meeting decided to leave the benchmark zero-level interest rate unchanged, as expected, as the economy was rebounding from a tough first quarter.
The minutes said “many participants,” in order to decide on raising rates, said they “would need additional information indicating that economic growth was strengthening, that labor market conditions were continuing to improve, and that inflation was moving back toward the committee’s objective.”
Since late 2008, the central bank has kept the federal funds rate pegged between zero and 0.25 percent to ease credit and support the economy’s recovery from the severe 2008 to 2009 recession.
The minutes revealed an overriding concern about raising rates too quickly, risking an upset of the economy’s moderate recovery from the Great Recession. The Fed’s dual mandate is price stability and maximum employment.
“Most participants judged that the conditions for policy firming had not yet been achieved; a number of them cautioned against a premature decision,” the minutes said.
The Fed has signaled its first rate hike in nine years would likely come this year. Many analysts have forecast the timing as soon as the FOMC meeting in September.
Recent market speculation has put that timing back a bit, to December or even 2016, amid a recent surge in uncertainties about the Greek debt crisis and China’s slowing growth and financial system stress.
The Fed has insisted inflation would eventually increase after “transitory” effects, such as lower oil prices, dissipate.
The Fed’s main focus in the recovery—maximum employment—was getting closer to achievement but the improvement was seen as uneven.
“Several participants pointed out that, even with the recent upturn, wage increases remain subdued,” the minutes said.
Developments overseas, particularly in Greece and China, were on the radar of the FOMC participants last month as they weighed a rate increase.
“Several mentioned their uncertainty about whether Greece and its official creditors would reach an agreement and about the likely pace of economic growth abroad, particularly in China and other emerging market economies,” the minutes said.
Members were concerned that a failure of Greece and its lenders to strike a new deal could disrupt euro area financial markets and spill over into the United States.
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said the Fed minutes were less important to markets than normal because of the heightened level of concern regarding Greece and China.
“On both fronts, underlying conditions have deteriorated markedly since the Fed’s mid-June meeting, so the minutes may be largely irrelevant at this point,” he said.
Some analysts said the recent Greece and China developments lowered the chances of the Fed raising rates in September.
“Should Greece suddenly be yanked from the fire with a last-minute rescue or China manage to engineer a reinflation of its equity bubble, the Fed stands ready for liftoff,” said Chris Low of FTN Financial.
“But for now the bar for domestic data is a little higher than it was before, suggesting September liftoff is unlikely.”