Fed officials split in July on whether rate hike needed soon

Federal Reserve officials were divided in July over the urgency to raise interest rates again, with some preferring to wait because inflation remained benign and others wanting to go soon as the labor market nears full employment.

"Several suggested that the committee would likely have ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 per cent on a sustained basis," according to the minutes of the central bank's July 26-27 policy meeting released in Washington on Wednesday.

"Some other participants viewed recent economic developments as indicating that labor market conditions were at or close to those consistent with maximum employment and expected that the recent progress in reaching the committee's inflation objective would continue, even with further steps to gradually remove monetary policy accommodation," the minutes also showed.

At the July meeting, the Federal Open Market Committee left the benchmark interest rate in a range of 0.25 per cent to 0.5 per cent and noted that "near-term risks to the economic outlook have diminished."

A number of Fed policy makers have suggested in public comments since the last meeting that it will probably still be appropriate to raise interest rates at least once this year, with some indicating a move could come as soon as the FOMC's September 20-21 gathering.

Investors will listen closely for additional clues on timing when Fed Chair Janet Yellen will speak August 26 at an annual symposium hosted by the Kansas City Fed in Jackson Hole, Wyoming. They put the probability of a rate increase this year at roughly 50 per cent, according to the prices of federal funds futures contracts.

New York Fed President William Dudley said on Tuesday during an interview on Fox Business Network that the US central bank is "edging closer" to another hike and that "the market is complacent" about the amount of tightening that will be needed over the next year or so.

The FOMC has left rates unchanged since voting in December to raise them from near-zero levels, marking the first increase in nearly a decade. Concerns about the prospects for global economic growth, sagging inflation expectations, and mixed readings on the U.S. economy have kept them sidelined.

"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," the minutes also showed.