Rate hike conditions are “approaching”, says the US Fed

<p>However, policy makers also expressed concerns about recent drops in commodity prices.</p>

The US Federal Reserve said in minutes from its July meeting that conditions for a rate increase are "approaching". However, policy makers also expressed concerns about recent drops in commodity prices and said inflation is still too low to justify an interest rate increase.

"Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point," the minutes from the Federal Open Market Committee's (FOMC) said.

The committee noted that the labour market "had continued to improve, with solid job gains and declining unemployment". However, it added that "some members continued to see some downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices".

Inflation closely monitored

The FOMC said it would continue to monitor inflation "closely, with almost all members indicating that they would need to see more evidence that economic growth was sufficiently strong and labour market conditions had firmed enough for them to feel reasonably confident that inflation would return to the committee's longer-run objective over the medium term".

While the US jobs market has seen the unemployment rate fall to 5.3 per cent, inflation remains below the Fed's target of two per cent.

"The market will be most interested in where US inflation comes in, because this is something that will determine not just when the Fed begins to normalise policy but also the pace at which they tighten, going forward," Barclays FX strategist Hamish Pepper told Reuters.

The Fed's key interest rate has been kept near zero since December 2008. Many analysts have argued that the Fed will raise rates twice this year, with the first hike coming in September. 

Federal Reserve Chairwoman Janet Yellen previously said that a rate hike is on the cards for 2015. She added that if the US economy continues to strengthen, "it will be appropriate at some point this year to take the initial step to raise the federal funds rate".

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