Fed minutes: Recovery of U.S. economy isn't enough for raising interest rate

Fed still concerned by low inflation as rate liftoff nears. Federal Reserve officials signaled concern about stubbornly low inflation even as they indicated that an improving job market is bringing them closer to the first interest-rate increase in almost a decade.

Participants in the July 28-29 Federal Open Market Committee meeting said that economic conditions “were approaching that point” where the economy could sustain a slight increase in borrowing costs, according to minutes of the meeting released in Washington on Wednesday.

Their debate was silent on whether they should act in September or delay to await more evidence that inflation is heading higher. At the same time, officials want to avoid the error of tightening policy too soon, especially when inflation gauges remain persistently weak.

During their discussion, officials last month “noted that considerable uncertainty remained” about when wages would rise and “whether that development might translate into increased price inflation.”

One prominent Fed official is against raising rates in September because inflation is so low. The president of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, says a rate hike could cause a domino effect of bad outcomes: home prices would fall, job growth would slow and U.S. trade would get hurt.

Most economists believe the Fed is likely to raise its key interest rate after its meeting ends on September 17.