21 August 2015
Brought to you by Investec Switzerland.
Federal Reserve officials signaled concern about stubbornly low inflation even as they indicated that an improving job market is bringing them closer to the first interest-rate increase in almost a decade. Participants in the July 28-29 Federal Open Market Committee meeting said economic conditions “were approaching that point” where the economy could sustain a slight increase in borrowing costs, according to minutes of the meeting released in Washington on Wednesday. Preserving their flexibility on the timing of rate liftoff, they also showed more concern about how soon they would hit their 2 percent inflation target, a goal they have missed for more than three years.
Their debate was silent on whether they should act in September or delay to await more evidence that inflation is heading higher. That discussion highlights a dilemma for the data-dependent FOMC: As the job market continues to deliver robust gains, with unemployment at 5.3 percent, holding interest rates near zero is harder to justify as the expansion enters its seventh year. At the same time, officials want to avoid the error of tightening policy too soon, especially when inflation gauges remain persistently weak. The committee’s hand-wringing over its inflation goal was interpreted by investors as a lack of conviction they would be ready to raise rates at the Sept. 16-17 FOMC meeting. The probability of a September rate increase fell to 36 percent, according to prices in the federal funds futures markets, from 50 percent earlier on Wednesday.