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 percent 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 percent to 0.5 percent 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 Sept. 20-21 gathering.

Investors will listen closely for additional clues on timing when Fed Chair Janet Yellen will speak Aug. 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 percent, according to the prices of federal funds futures contracts.

David Fuller's view

It is not difficult to make a case for or against a rate hike before yearend.  Those favouring a hike in September cite ‘near full employment’, although on average these are not high-paying jobs.  They also maintain that a rate increase would help savers and the banking sector.  Those favouring a further delay before the next rate hike point to very low inflation.  They are (or should be) more concerned about upward pressure on the USD in the event of a rate hike while economies in other developed countries remain generally weaker. 

Of course there are a few other minor factors which some have mentioned but the key point, I believe, is that Fed Chairman Janet Yellen will have the most influential vote.  I see no evidence that she is about to change her cautious stance, but we will know more when she speaks on 26^th August, during an annual symposium at Jackson Hole hosted by the Kansas City Fed.   

In a modest initial response following the release of the Fed’s July notes, the Dollar eased and precious metals reduced earlier minor losses.

See also: Gold Advances as Fed Split on Whether Rate Hike Needed Soon, by Bloomberg)