While the appropriate conditions are approaching, according to the minutes, the ‘appropriate conditions haven’t yet been achieved in order to go forward with the rate increase.’ Inflation, which isn’t quite moving toward the needed conditions, was cited as the main factor behind slow progress.
Released Wednesday afternoon, the minutes stated that ‘most judged that the policy firming conditions hadn’t been achieved yet, but they did note that conditions approached that particular point.’ In addition, the minutes mentioned that ‘participants saw that the labor market showed marked improvement since the start of this year, but others did note that there’s essentially room for further improvement.’
The Federal Reserve previously set a 2 percent inflation rate as a benchmark for a prospective rate increase, which hasn’t yet been reached. The other benchmark, a proposed 6 percent unemployment rate, has been reached over the past year.
The minutes also included discussion regarding the country’s inflation pace, in addition to a minor revision to medium term gross domestic product growth that trended downward.
Market observers noted that ‘investors were likely looking for an explicit sign that the Federal Reserve will likely raise the rate by September.’ However, the central bank didn’t raise rate during the July meeting and didn’t give an explicit sign that they do plan to raise rates in the next month. Traders now assign the probability of a rate increase at a 36 percent chance, down from the early week figure of 46 percent.
The minutes also revealed that the central bank’s outlook for continued improvement in the labor markets and sustained economic growth was ‘essential’ in supporting their anticipations that the inflation rate will approach the Committee’s proposed 2 percent objective. They will also be looking for ‘an indication that the country’s economic outlook will continue to evolve as they anticipate.’
Some analysts suspect that while ‘core inflation is gradually increasing, headline inflation has been degrading, while the rest of the world is having difficulty with sustaining economic growth amid excess capacity, which should contribute to [the Federal Reserve’s] concerns regarding curating inflation and economic growth within the country.’
Following the release of the minutes, stocks rallied after hitting lows during the morning sessions. Bond yields approached session lows.