Fed takes another step towards raising rates, minutes show

The release of minutes from the US Federal Open Market Committee showed that it, like its UK counterparts who also released minutes on Wednesday, was more hawkish than expected.

The release of minutes from the US Federal Open Market Committee showed that it, like its UK counterparts who also released minutes on Wednesday, was more hawkish than expected.

The release of minutes from the FOMC's July meeting showed the members were becoming increasingly divided over policy, with a growing minority calling for a "relatively prompt" interest rate hike.

In July, the Fed announced it would cut a further $10bn off monthly bond purchases and maintain interest rates at 0.25%, with a 9-1 vote in favour from Philadelphia Fed President Charles Plosser being the only dissenter. The US central bank has indicated that it sees no immediate need to lift rates, saying that the labour market still has room to grow.

But the minutes showed that some members believe that recent strengthening of the economy, notably on the jobs and inflation fronts, was already "sufficient to call for a relatively prompt move toward reducing policy accommodation" in order to avoid overshooting the committee's unemployment and inflation goals.

"These participants were increasingly uncomfortable with the Committee's forward guidance," the minutes said.

However, most governors agreed more data was needed to move up the schedule of rate hikes after the second quarter growth drop in GDP "increased uncertainty", with several members expecting inflation to move back towards the committee's target "very slowly" and pointing to the high rates of long-term unemployed.

Economist Paul Dales at Capital Economics said the minutes suggested the Fed has taken "another step closer towards raising interest rates".

He concluded: "Overall, a lot still depends on whether or not wage growth accelerates as the labour market continues to improve. Nonetheless, the minutes provide some support to our view that rates will first rise in March and will then increase by more than widely expected."