Fed Minutes Suggest Rate Hikes Are Nowhere in Sight

NEW YORK (TheStreet) -- If you're waiting for higher interest rates, the Fed has a message: Pull up a comfortable chair, 'cause you'll be waiting.

The central bank thinks the economy is now rebounding from the cold winter -- but it thinks low rates are still a crucial part of the recipe and some parts of the recovery, especially housing, need easier credit, according to minutes of the June 17 to June 18 meeting of the Federal Open Market Committee, released Wednesday. So while the Fed disclosed plans to end its latest bond-buying spree in October, earlier than the December windup that had been expected, it made clear that the next steps on monetary policy after that will be incremental at best.

Otherwise, the minutes paint a mostly upbeat picture of the economy, including some trouble spots that had been worrying markets until much better-than-expected hiring numbers for June were released last week.

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"Although participants marked down their expectations for average growth of real {gross domestic product} GDP over the first half of 2014, their projections beginning in the second half of 2014 changed little," the minutes said. "Over the next two and a half years, they continued to expect economic activity to expand at a rate sufficient to lead to a further decline in the unemployment rate"

The expansion will be driven by easy money, less federal budget cutting, rising household net worth, improving credit conditions for households and businesses, and rising employment and wages, the committee said. Inflation is still running below the Fed's 2% annual target rate, though it's expected to rise to near 2%. Household  spending is picking up, led by cars and trucks.

Businesses are also showing signs of investing more in new plants and equipment, the minutes say. If true, that would be a big advance for a recovery where productivity growth has been running near 30-year lows since 2011. The weak investment has bred poor productivity, and that has been a major reason why wages haven't picked up more strongly since the recession.

One reason is that business credit is once again flowing -- and housing is struggling because mortgage credit is still tight, the minutes say.

"Many participants expressed concern about the still-soft indicators of residential construction," the minutes say. "Despite attractive mortgage rates, housing demand was seen as being damped by such factors as restrictive credit conditions, particularly for households with low credit scores; high down payments; or low demand among younger homebuyers, due in part to the burden of student loan debt."

The bottom line: Interest rates fell after the minutes came out, because they made clear the Fed is in no rush to tighten money. With inflation low, they don't need to. And with the crucial housing sector still soft -- though data has improved markedly in the few weeks since the Fed met -- they feel like the work of low rates is not quite done.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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