Fed minutes keep interest rate hike in play

WASHINGTON – It looks like a toss-up whether the Federal Reserve will raise interest rates next month.

An account of the Fed’s last meeting in July, released Wednesday with the usual three-week lag, indicated that “almost all” policymakers wanted to see further improvement in the job market and the inflation outlook before raising rates for the first time in nine years.

And the economic data released since that meeting have been decidedly mixed.

While job growth remained solid in July, wage gains have been moderate and inflation last month continued to sag well below the Fed’s 2 percent target. One common measure of inflation, reported Wednesday by the government, showed consumer prices were up just 0.2 percent in July from a year earlier.

While home building in the U.S. is showing signs of picking up, there are increasing concerns about China’s slowdown and its impact on the global economy and commodity prices, which could put downward pressure on inflation.

Analysts and investors have been divided on whether the Fed will pull the trigger in September, and they most likely remained so after the release of the minutes. While policymakers clearly weren’t ready to take action in July, the minutes indicate many of them feel the time is close.

“Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” the minutes said.

Wall Street’s reaction on Wednesday reflected that air of uncertainty.

Stocks, which had been slumping during the day, thanks partly to China, rebounded immediately after the minutes came out, but soon afterward turned back down to where the market was before, for another losing session.

“The divide between those on the (Fed’s policy committee) who would like to raise rates in September and those who would prefer to wait is widening,” said Diane Swonk, chief economist at Mesirow Financial, in commenting on the Fed minutes.

“This is to be expected given the ambiguous conditions the Fed has given us for liftoff,” she said. “There is nothing clear-cut about the Fed’s requirements that labor markets need to improve a bit and the idea that members need to feel ‘confident’ in a forecast that inflation will return to the Fed’s 2 percent target over the medium term.”