WASHINGTON (8/20/15)--The Federal Open Market Committee (FOMC) believes the conditions needed to justify a rate hike are “approaching,” according to the meeting minutes from the FOMC’s meeting in July.
That means by September, the appropriate conditions may have arrived, and that the Federal Reserve’s monetary policy-making body will raise short-term interest rates for the first time since the recession.
The FOMC has maintained interest rates at near-zero levels to spur lending activity since the downturn.
“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 (MarketWatch Aug. 19).
Several members of the committee said that any further delay in tightening policy could fuel a buildup in inflationary pressure, which has been weak, but risen steadily in recent months. On Wednesday, the Bureau of Labor Statistics reported that the consumer price index rose by 0.1%, a slight deceleration monthly, but a slight acceleration annually.
The FOMC also homed in on the improvements in the labor market in recent months, including in labor market utilization. Many participants also acknowledged that slack still remains, with a large proportion of workers still not actively looking for jobs.
Wage growth also has remained elusive.
“An acceleration in wages is not required for the Fed to begin raising interest rates, but the weakness last quarter could cause some policymakers to question how close full employment is,” said Ryan Sweet, Moody’s analyst (Economy.com Aug. 19). “Still, if the current pace of job growth is sustained, the economy will hit full employment by this time next year.”
The FOMC’s next two-day meeting will fall on Sept. 16-17.