September’s decision by the US Federal Reserve to hold interest rates unchanged was a “close call” and some policymakers thought a move could be merited relatively soon, minutes to the meeting revealed on Wednesday.
Officials were largely agreed that the case for a rise in short-term rates had strengthened in the weeks leading up to the September 20-21 meeting, with a number of policymakers seeking to signal that move could happen within months if the economy stayed on track, reports Sam Fleming in Washington.
“Some participants believed that it would be appropriate to raise the target range for the federal funds rate relatively soon if the labour market continued to improve and economic activity strengthened,” the minutes said. On the other hand, “some others preferred to wait for more convincing evidence that inflation was moving toward the committee’s 2 per cent objective.”
The Fed was heavily divided at its latest meeting, with policymakers diverging over how quickly they needed to respond to improving labour market data. After the decision, Janet Yellen, the Fed chair, stressed that there was scope for further improvement in the labour market before the central bank needed to lift rates for a second time since its December increase.
Jobs numbers released after that meeting have supported that argument, as the unemployment rate inched up amid signs Americans are being drawn off the sidelines and into the labour force.
However the minutes point to a vocal contingent of Fed officials who are eager to move soon. The Fed has two more meetings this year, one on November 1-2 and the final one on December 13-14.
Three Federal Open Market Committee members formally dissented at the no-change decision, saying they wanted an immediate increase. The minutes suggested they were not alone, with some officials arguing that a delay would “unduly increase the risk of the unemployment rate falling markedly below its longer-run normal level”. If that happened, the Fed could be forced to lift rates more sharply, hitting the economy harder.
The hawks at the meeting also said they were worried that the Fed was appearing to diverge from its past behaviour by holding fire for so long, meaning that it could risk “eroding its credibility” given recent economic data had been in line with its expectations.
A number of those who argued in favour of waiting saw the decision as a “close call”. It was noted at the meeting that arguments could be made for an increase at September’s meeting and for waiting for more evidence on the strength of the labour market and inflation.
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