Federal Reserve split on timing of next rate rise

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Minutes from the US central bank’s last meeting show policy-makers divided over when the next rate rise should come.

According to the minutes, some Federal Reserve members felt “economic conditions would soon warrant taking another step,” while others believed more data was needed.

The US central bank is widely expected to raise interest rates before the end of the year, but it is not clear when.

At its July meeting, the Fed opted to hold rates between 0.25% and 0.5%.

The cost of borrowing in the US has been at that level been since December 2015.

Investors and traders were looking for clues in the minutes about the whether that increase will come in September or at its final meeting in December. Most do not think the central bank will act at its meeting in November because the timing is too close to the US election.

“Members judged it appropriate to continue to leave their policy options open and maintain the flexibility to adjust the stance of policy based on incoming information,” the minutes said.

“A couple of members preferred also to wait for more evidence that inflation would rise to 2% on a sustained basis,” the statement continued.

Inflation, which has been a key factor in determining the next interest rate rise, has remained well below the central bank’s 2% target. According to the Federal Reserve’s own measurement, the annualised rate has been stuck at 1.6% since March.

Brexit risks

However, the minutes did indicate that the Fed feels economic condition in the US were improving. The unemployment rate has remained under 5% and wages are slowly rising.

On Tuesday, one member of the Federal Open Market Committee William Dudley said an interest rate rise was “possible” in September.

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Federal Reserve chair Janet Yellen

Mr Dudley, president of the New York Federal Reserve, told Fox Business Network, “we’re edging closer towards the point in time where it will be appropriate I think to raise interest rates further”.

The risks anticipated from the UK’s decision to leave the European Union appear to have diminished in the short-term, the Fed said, though it added, “several longer-term global risks related to Brexit remained.”

Investors will now turn their attention to a speech by Fed Chair Janet Yellen on 26 August at an annual conference of central bankers in Jackson Hole, Wyoming.

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