Rate hike: US Fed seeks to keep options open

WASHINGTON • Federal Reserve policymakers agree that more economic data is needed before raising interest rates, although some see a need to tighten policy soon, according to the minutes of the United States central bank's July 26-27 policy meeting.

The minutes, which were released on Wednesday (early yesterday morning, Singapore time), showed that members of the rate-setting Federal Open Market Committee (FOMC) were generally upbeat about the US economic outlook and labour market.

"Some... members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation," the Fed said in the minutes.

Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and members of the FOMC said they wanted to "leave their policy options open".

The US dollar strengthened after the release of the minutes, while US stocks and prices of shorter-dated US Treasuries pared losses.

Fed fund futures showed little change in bets on when the Fed will lift rates, with investors still expecting the next rate increase to likely come in December.

"The minutes contained more concrete indications that a consensus to raise rates is slowly building," said Mr Brian Dolan, head market strategist at Drivewealth in New Jersey.

The Fed raised rates in December for the first time in nearly a decade, but it has since kept rates unchanged amid financial market volatility, a global growth slowdown and tame US inflation.

Investors had raised bets earlier this week for a rate increase this year after two Fed policymakers said the economic stars now appear to be aligning despite weak US growth in the first half of this year.

Seventeen Fed policymakers participated in the July meeting, 10 of whom had a vote. Of the broader group of policymakers, several expressed concern that low interest rates could hurt financial stability.

The minutes came a day after New York Fed president William Dudley said "it's possible" to raise rates at the Sept 20-21 policy meeting and Atlanta Fed president Dennis Lockhart said a hike next month is in play.

The Fed also has policy meetings scheduled in early November and mid-December.

Economists see the December meeting as the most likely time for a rate increase since it follows the US presidential election, according to a Reuters poll last week.


A version of this article appeared in the print edition of The Straits Times on August 19, 2016, with the headline 'Rate hike: US Fed seeks to keep options open'. Print Edition | Subscribe