By Meaghan Kilroy, Crain News Service
WASHINGTON (Aug. 21, 2015) — The Federal Open Market Committee's decision to keep the federal funds rate at zero to 0.25 percent at its July meeting was based on its view that despite further progress, economic conditions warranting an increase in the target range had not yet been met, according to meeting minutes released Aug. 19.
Committee members did not specify a point for the rate increase, but said “it would be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
The July minutes showed Fed policymakers raising questions about what it would take to get inflation back to their target. Rising demand for labor “still appeared not to have led to a broad-based firming of wage increases,” the minutes said.
“It was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation,” the minutes said.
Still, “most” officials expected that downward pressure on inflation from declines in energy prices and a stronger dollar “would prove to be temporary.”
A 30-percent plunge in oil since its closing peak in June is holding inflation down, along with a slowdown in China that is reducing demand for metals and other commodities. A stronger dollar is also keeping inflation at bay by reducing prices of imported goods.
Meeting participants “generally viewed the risks to the outlook for domestic economic activity and the labor market as nearly balanced,” according to the minutes, although many continued to see some downside risks arising from economic and financial developments abroad.
The minutes also showed that most market participants surveyed by the Federal Reserve in July said September's meeting would be “the most likely time for the first increase in the target range for the federal funds rate,” consistent with last month's survey results.
Bloomberg contributed to this story, which appeared on the website of Crain's Pensions & Investments magazine, a Chicago-based sister publication of Tire Business.