Federal Reserve sided with caution on latest rate vote, report shows

WASHINGTON, Oct. 12 (UPI) — During its policy meeting last month, the U.S. central bank decided to stand pat with interest rates due to lingering concerns over a few key economic signals, details from the meeting showed Wednesday.

The Federal Reserve issued its minutes report from the Sept. 21 meeting, when the Federal Open market Committee voted to leave the federal funds rate alone for the sixth straight time. The panel last raised rates in December.

There were some positive indicators, the Fed reported, including improved labor market conditions and faster growth of the real gross domestic product in the third quarter than in the entire first half of 2016. However, benchmark signals remained below par.

RELATEDSeptember: Fed again leaves interest rates alone on sub-par inflation

“Consumer price inflation continued to run below the Committee’s longer-run objective of 2 percent, restrained in part by earlier decreases in energy prices and in prices of nonenergy imports,” the Fed minutes state. “Survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.”

Inflation is a key indicator of economic health and one of the most important gauges the FOMC evaluates in deciding to raise rates. Two percent inflation is generally the Fed’s desired minimum to initiate a hike.

The Fed minutes also cited a worse-than-expected August jobs report as a factor in the board’s decision.

Some analysts believe the Federal Reserve is a bit behind schedule in raising rates for 2016. Earlier this year, it was anticipated by experts and some voting members of the central bank that multiple hikes could occur this year, perhaps as early as mid-year.

Unforeseen events, however, such as the United Kingdom’s surprise departure from the European Union, have interrupted those expectations.

In recent weeks, though, momentum for another hike, which would be the first of 2016, has started to accumulate. Last month, three of the FOMC’s ten members voted for an increase. Previously, there had been only one consistent dissenter — Kansas City Federal Reserve President Esther George.

“Expectations for a policy rate increase by the end of this year rose a bit since the July FOMC meeting, reportedly reflecting comments of Federal Reserve officials that were viewed, on balance, as
suggesting that the case for policy firming had strengthened over recent months,” the minutes report states. “Nominal Treasury yields across the curve edged up. Anticipation of the impending deadline for compliance with MMF reform measures continued to prompt net outflows from prime MMFs and put upward pressure on some term money market rates.”

RELATEDSeptember: Fed members say there’s no hurry to raise interest rates

The British exit, colloquially called “Brexit,” reverberated immediately across world markets and continues to have minor impacts.

“Domestic financial conditions remained accommodative since the July meeting,” the Fed report said. “Although volatility increased somewhat in the last few days of the period as market participants focused on central bank communications in the United States and abroad.”

Most analysts expect the Fed to raise rates sometime before the end of the year, at one of its final two policy meetings — Nov. 1-2 and Dec. 13-14.

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