Federal Reserve officials said last month that while conditions for raising interest rates were approaching, they need more confidence inflation is moving toward their goal, according to meeting minutes that prompted investors to reduce bets for a September liftoff.
Most meeting participants "judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point," according to minutes of the July 28-29 Federal Open Market Committee session, released Wednesday in Washington.
A headline on the minutes was inadvertently released by Bloomberg 24 minutes before a 2 p.m. embargo set by the Fed.
The details come four weeks before the Fed's September meeting, when most economists forecast the central bank will raise its benchmark interest rate for the first time since 2006. Policy makers say a decision to raise rates will hinge on continued improvement in the labor market and confidence that inflation will move higher.
"Almost all members" indicated that "they would need to see more evidence that economic growth was sufficiently strong and labor markets conditions had firmed enough for them to feel reasonably confident that inflation would return to the Committee's longer-run objective over the medium term," the minutes show. "Members" refers to meeting participants who are voting on FOMC policy this year.
Investors reacted to the news by reducing the probability the Fed would tighten next month to 38 percent, based on pricing of federal funds futures contracts at around 2:30 p.m. in New York, compared to 50 percent earlier Wednesday.
Inflation Confidence
"My immediate reaction is that it should reduce the probability of a September rate hike a little bit," said Guy LeBas, managing director at Janney Montgomery Scott LLC in Philadelphia. "The biggest point to me is that there's no evidence of confidence of rising inflation."
Economists prior to the release of the minutes had been more confident of September liftoff. According to a Bloomberg survey taken Aug. 7-12, 77 percent said the Fed will act next month.
Officials in July left the benchmark federal funds rate near zero and said that it will be appropriate to begin tightening policy once they have seen "some further improvement" in the labor market and are reasonably confident that inflation will move up toward their 2 percent objective. The addition of the modifier "some" was the only change to their language on conditions that would warrant a rate increase.
