Conditions for a rate hike have not yet been met, July FOMC mins show
Investing.com -- When the Federal Open Market Committee last met it judged that conditions for an imminent hike in short-term interest rates had not yet been achieved, minutes from its July meeting released on Wednesday afternoon showed.
Following the completion of its July FOMC meeting three weeks ago, the Fed provided no explicit indications that it could raise short-term interest rates when it meets next in September. At the time, the Fed reiterated that it needed to see further improvements in the U.S. labor market and signals that long-term inflation had moved gradually toward its target of 2% before it decided to hike interest rates.
On Wednesday morning, the U.S. Bureau of Labor Statistics (BLS) said its Consumer Price Index (CPI) for the month of July ticked up 0.1%, following solid gains of 0.3% and 0.4% in June and May respectively. The Core CPI, which strips out food and energy prices, also inched up 0.1% from its June level, below expectations for a 0.2% monthly gain. Over the last 12 months, the core reading has increased 1.8% after remaining unchanged from June.
The muted inflationary gains could appease dovish sentiments at the Fed for a delayed rate hike. Long-term inflation has failed to reach the Fed's annual 2% target for every month over the last three years.
A reading of the July minutes paints a picture of a sharply divided FOMC regarding their views on inflation. The Fed, according to the minutes, said by some objectives the inflation data was "not progressing" toward its targeted goal. Other members, however, said that inflation conditions for a rate hike would be met or could be "met shortly."
The Fed's benchmark Federal Funds Rate has remained at its current level between zero and 0.25% since 2009 at the conclusion of the Financial Crisis. In addition, nearly a decade has passed since the Fed has last raised the benchmark rate.
In June, all 17 members of the FOMC expected that the Federal Funds Rate should remain under 1% by the end of 2015, according to the Fed's Dot Plot, which provides a long-term forecast on the path of interest rates. However, the median member projected that the Federal Funds Rate will be between a range of 0.5 and 0.75% at that point -- signaling a rate hike at some point this year and an end to a zero interest rate policy.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, inched up to 96.53, minutes after the release. Shortly before the announcement, the index fell to an intraday low of 96.46, down more than 0.50% on the session. Yields on U.S. 2-Year government bonds fell roughly four basis points to 0.66% following the release.
The Dow Jones Industrial Average rose sharply after the release to 17,511.21, down 0.13 points for the session. Minutes before the release, the Dow was at 17,391.35, down approximately 120 points or 0.69% for the day.
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