The minutes from the Federal Open Market Committee (FOMC) September meeting showed that the Fed's concern mostly lingers around global economic troubles, but they still intend to raise rates before the end of 2015.
"The concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of U.S. monetary policy," the minutes said. "Based on federal funds futures, the probability of a first increase in the target range for the federal funds rate at the September meeting fell slightly."
"Many participants judged that the effects of these developments on domestic economic activity were likely to be small, but they acknowledged the risk that they might restrain U.S. economic growth somewhat."
Even though most officials indicated that economic conditions will allow the hike to happen later this year, “the committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated.’’
According to the minutes, Fed officials are pretty optimistic about the U.S. economy. Real gross domestic product (GDP) expanded at a moderate pace in the third quarter, and labor market conditions continued to improve, although compensation gains were modest.
Consumer price inflation remained under the Fed's 2 percent objective due to headwinds from failing energy prices and non-energy import prices. The minutes also highlighted that employment expanded in both July and August.
In terms of housing, the minutes explained that it remains on an "upward trend," as new single-family starts rose in the third quarter.
Now, what concerns officials most is that foreign economic growth remains weak due to GDP contractions in Canada, Japan, Brazil, and Taiwan, even as activity expanded at a moderate pace in the euro area and the United Kingdom.
Economic downfalls abroad raise one question: How will this affect U.S. net exports, GDP, and inflation?
"Although U.S. economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period," the minutes explained. "Tighter financial market conditions and greater volatility contributed to a reduction of the odds that market participants appeared to place on the first increase in the federal funds rate occurring at the September FOMC meeting and to a flatter expected path for the policy rate thereafter."
The National Association of Federal Credit Unions (NAFCU) Chief Economist and Director of Research Curt Long commented on the recent FOMC minutes noting that "the minutes from the FOMC’s September meeting frames the decision to hold off on increasing rates as one driven by global weakness rather than on the subsequent reaction of financial markets.
"The committee reiterated that it intends to raise rates this year, but low inflation and the continued downward pressure from currency values, oil prices and weakness abroad represent significant obstacles.”
At the FOMC September meeting, officials decided to keep the federal funds target rate at zero to 1/4 percent, where it has been for nine years.
"In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement. "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
Click here to view the FOMC minutes.