WASHINGTON — Federal Reserve officials appeared to edge closer last month to a decision to raise interest rates as early as September. At the same time, officials remained concerned about low inflation, sluggish wages and a sharp slowdown in China — factors that will help determine whether they raise rates next month.
Minutes of the Fed's July 28-29 meeting released Wednesday indicate that officials thought they were nearing their goals on maximizing employment. But they seemed split, in particular, on whether inflation had climbed enough to justify a rate increase.
"Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range," the minutes said.
Details of last month's deliberations emerged four weeks before the officials will gather for a meeting at which most analysts still expect the Fed to raise its key short-term rate from a record low. The Fed has held that benchmark rate near zero since 2008, when the financial system was teetering and the economy had sunk into a deep recession.
With the unemployment rate now at a seven-year low of 5.3 percent and hiring consistently solid, the job market is nearly back to normal. Yet many economists said the minutes of the July meeting did little to clarify the Fed's intentions.
"While September remains on the table, there is little indication that officials are champing at the tightening bit," said Sal Guatieri, senior economist at BMO Capital Markets. "While the Fed seems confident in achieving its employment mandate, it remains unsure about hitting the inflation goal."
Inflation has remained below the Fed's 2 percent target for annual price increases for more than three years.
On China, Fed officials did not appear to worry that the falling Chinese stock market would seriously imperil growth in the world's second-largest economy. But "several participants noted that a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook."
Since then, the situation in China has grown more worrisome. Earlier this month, China announced a devaluation of the yuan, a move that roiled global markets. The action has raised new concerns about the dollar, which has been rising in value for a number of months. A stronger dollar can act as a drag on the U.S. economy by expanding America's trade deficit. When the dollar rises, U.S. exports become less competitive in overseas markets and foreign goods can consume greater market share in the United States.
The minutes said Fed officials discussed the risks posed by a divergence in interest rates, which would occur if the Fed began raising rates while central banks in other nations kept their rates low.
The Fed minutes suggested that this could lead to a further strengthening of the dollar, which could further hurt U.S. exports and drag oil prices, now at a six-year low, even lower. On Wednesday, benchmark U.S. crude dropped $1.95 to $41.17 a barrel in electronic trading on the New York Mercantile Exchange.
Fed officials also noted that the job market still had room for improvement, particularly on worker pay.
"The ongoing rise in labor demand still appeared not to have led to a broad-based firming of wage increases," the minutes said.
The minutes showed that officials have decided to provide more clarity about the economic forecasts the Fed releases four times a year. The forecasts on growth, employment and inflation will show the median value for each variable, derived from all the projections of Fed officials. Currently, the forecasts include a "central tendency," which excludes the bottom three and top three forecasts for each variable.
The minutes said Fed officials believed that using the median for each forecast would provide a "more robust summary" of where most officials believe the economy is headed.
This story has been corrected to show that the Fed minutes were based on its July meeting, not June.