Fed edges closer to rate hike by next month, minutes show

WASHINGTON — Federal Reserve policymakers decided at their last meeting to signal they could raise a key interest rate in December because economic risks from abroad had eased, but they opted to wait on a hike out of concerns about a slowing job market and low inflation.

An account of the late October meeting, released Wednesday after the usual three-week lag, showed central bank officials were edging closer to the first increase in the so-called federal funds rate in nearly a decade.

With economic reports that were released after the meeting showing surprisingly strong labor market growth and increasing inflation, the views expressed in the minutes pointed toward a December rate hike.

But Fed policymakers expressed concern last month about “unanticipated shocks” to the economy, and the fallout from Paris terrorist attacks could change their views.

Fed Chairwoman Janet Yellen told Congress on Nov. 4 that a rate hike could come in December, but that no decision had been made. Fed officials voted 9-1 in October to hold the rate near zero, where it has been since late 2008 in an effort to stimulate economic growth.

Most members of the rate-setting committee said at the October meeting that they anticipated the conditions for raising the interest rate “could well be met by the time of the next meeting,” according to the minutes.

The committee next meets Dec. 15-16.

In fact, some of the meeting participants said they thought the conditions had already been reached. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., dissented from the October rate hike vote for that reason.

But some other members said it is unlikely that economic data received by the December meeting would warrant a rate increase, raising the prospect of several dissents if the Fed decides to take action then.

Many analysts had thought the Fed was ready to raise the rate in September. But beginning in late August global financial market turmoil triggered by concern about the slowing Chinese economy led officials to wait.

By the October meeting, most Fed policymakers “saw the downside risks arising from economic and financial developments abroad as having diminished,” the minutes said.

After being told by Fed staff that investors saw the chances of a rate hike this year decreasing, the committee decided to take the unusual step of signaling in its post-meeting statement that it could raise the rate in December.

Members stressed that a decision would depend on continued positive economic data, “provided that unanticipated shocks do not adversely affect the economic outlook.”

Still, a few policymakers said they were concerned the statement “could be misinterpreted as signaling too strongly” that the rate would be increased in December, the minutes said.