Fed Minutes Show Debate Over Interest Rates

Date: August 18, 2016

Latest Federal Reserve Meeting Ended In Division Over Rate Hike

According to the minutes from the latest Federal Reserve meeting on July 26-27, officials are increasingly divided “over the urgency to raise rates again,” Bloomberg News reports. While some “preferr[ed] to wait because inflation remained benign,” others wanted to “go soon as the labor market nears full employment.” Bloomberg says the “divergence in views…means officials are likely to need more concrete evidence that inflation is picking up and economic growth is strengthening before deciding that an increase in borrowing costs is justified.” The New York Times says that while the minutes were “stripped of names and summarized in bloodless language,” it is “clear there was a rich debate over what factors the Fed should be weighing, and how, in making its next move.” Foreign Policy reports the meeting minutes “showed members were split on whether the strength in the U.S. job market…would continue.” According to Foreign Policy, the minutes indicated that “initial fears” about the Brexit vote “proved unfounded.” Yet, Fed members “were split on whether strong jobs and resiliency” after the Brexit announcement amounted to enough data “to raise the cost of borrowing.” According to the minutes released in Washington on Wednesday, members “generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity.” According to the Wall Street Journal, the minutes indicate the possibility of a rate increase as soon as September.

What This Means For Small Businesses

Small businesses are suffering from a stagnant economy that the Federal Reserve is doing little to fix. The agency’s policy of inaction has done little to help inflation rise. The latest NFIB Small Business Economic Trends report said, “In spite of the Federal Reserve’s efforts, inflation on Main Street is M.I.A.,” and “prospects for a resurgence of inflation are low, especially with gas prices on the decline again.” In this environment, the Fed may continue to waver indefinitely as it searches for a seemingly arbitrary amount of data before it proceeds with an interest rate hike.

Additional Reading

Reuters also reports on the latest Federal Reserve meeting minutes.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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