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Federal Reserve officials were debating the merits and risks of raising interest rates when they last huddled for a policy-setting session in July. Newly released minutes confirm they weren’t ready to raise rates for the first time since 2006, but how much closer did they get? That’s unclear.

“Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” the minutes state.

The timing of an eventual rate increase is of key concern to most Americans because it will help dictate the future tone of the economy, while also determining borrowing costs, savings rates and investment returns. Intense speculation surrounds the central bank’s next policy meeting Sept. 16-17.

Fed officials ‘on the stump’

The minutes come as 2 Fed officials are indicating in public fashion that they’re on opposite ends of the rate-raising debate.

Writing in The Wall Street Journal, Minneapolis Fed president Narayana Kocherlakota says he opposes raising rates in the near term, saying that “such a course would create profound economic risks for the U.S. economy.”

While he doesn’t have a vote on the policymaking Federal Open Market Committee, or FOMC, Federal Reserve Bank of St. Louis president James Bullard has been quoted saying he’ll argue next month in favor of a rate hike, citing the fear of financial bubbles that could imperil the economy.

Global risks

Looking around the globe, FOMC members “viewed the risks from the fiscal and financial problems in Greece as having diminished somewhat,” the July meeting minutes say. Casting their eyes toward Beijing, “several participants noted that a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook.”

Note that after the Fed met, China devalued its currency. Since rising rates would bolster the U.S. dollar relative to foreign currencies, some FOMC members “also discussed the risk that a possible divergence in interest rates in the United States and abroad might lead to further appreciation of the dollar, extending the downward pressure on commodity prices and the weakness in net exports.”

Stocks under pressure

With U.S. stocks down from their highs this year, investors have much at stake with the decisions made by the Fed. Pat O’Hare, chief market analyst with Briefing.com, says financial markets participants appear confused about the future direction of the economy.

“There are some prognostications of future economic disappointment,” he notes. “The Treasury yield curve has flattened, commodity prices — and not just oil — have moved sharply lower, corporate bond spreads have been widening, and areas with leading indicator status — transports, semis and copper — are some of this year’s worst performers.”

Economist Bob Brusca with Fact and Opinion Economics says stocks could suffer further if the Fed pulls the rate-raising trigger too quickly. “A correction in stock prices would likely ensue as analysts and investors mark down their earnings expectations with their economic growth expectations,” he notes.

Yellen’s pledge to go slow

Remember that when she appeared before the Senate Banking Committee in July, Federal Reserve Board Chair Janet Yellen said the risks of raising rates prematurely are more pressing than waiting too long to move them off the so-called “zero bound.” Amid fears that rising rates could depress growth, Yellen said that “with the (benchmark federal funds) rate pinned near zero, we don’t have great scope to respond.”

She has called an interest rate hike this year “likely,” while also predicting that the trajectory of rate hikes will be slower than seen historically.

Inflation shy of target

Given healthier hiring and an unemployment rate at 5.3%, Fed officials last month continued to gauge whether inflation might begin to reach their target. “Many participants indicated that their outlook for sustained economic growth and further improvement in labor markets was key in supporting their expectation that inflation would move up to the Committee’s 2% objective,” the minutes say.

Hours ahead of the release of the minutes, the Labor Department reported that consumer prices rose just 0.1% in July. Over the past year, the consumer price index is up 1.8%. The weaker-than-forecast increase “further fuels the dovish argument for the Fed to remain on the sideline, delaying liftoff beyond the September FOMC meeting,” says Lindsey Piegza, Stifel’s chief economist.

Piegza has consistently argued that the Fed should or will wait until 2016 to raise interest rates.

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