The minutes from the Federal Reserve’s July meeting gave no specific clues on whether the central bank’s officials were poised to raise interest rates in September.
In the minutes, Fed officials appeared to move closer to raising interest rates for the first time in nearly a decade but were concerned that a significant economic slowdown in China could pose risks to the U.S. economy.
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“The minutes of that meeting certainly were in line with a central bank that was nearing an inflection point, with ‘most’ saying ‘conditions were approaching that point,’ ” wrote Avery Shenfeld, CIBC’s chief economist, in a research note.
Policy makers also expressed concerns that inflation remains too low to justify an interest rate increase.
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“The committee placed an emphasis on needing ‘more evidence’ that the economy ‘had firmed enough’ to support a rise in inflation over time,” says Shenfeld.
Stocks recovered some of their losses after the release of the Fed minutes, but the modest recovery quickly dissipated. Bond yields fell sharply as bond traders took the Fed minutes as a sign that interest rates were going to remain at near-zero levels for several more months.
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“We’re sticking with our call for a September rate hike,” says Shenfeld.
Most traders believe the Fed will either raise interest rates in September or wait until early 2016.