Federal Reserve's Dovish Tone in Minutes Signals Delayed Rate Hike

The Federal Reserve’s dovish tone in the minutes of its July meeting, released Wednesday, takes a September rate increase out of the spotlight. ‘We look at the rate hike decision in terms of probabilities,’ said Scott Wren, senior global equity strategist at Wells Fargo (WFC) Investment Institute, based in St. Louis. ‘Coming into the release of these minutes, we said there’s a 30 percent chance of a September liftoff and 50 percent chance of rate hike in December, but after these minutes, I think we’re going to lean harder towards December.’ ‘Most [Fed officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,’ the minutes said. Economic conditions aren’t cooperating with the data dependent Fed, which reiterated that it must be ‘reasonably confident’ that inflation moves back towards its 2 percent target before it hikes rates. That hasn’t happened. The consumer price index (CPI) for July rose 0.1 percent, compared to expectations of 0.2 percent, according to a Wednesday morning report from the Bureau of Labor Statistics. While the CPI isn’t the Fed’s preferred inflation gauge (that would be the personal consumption expenditure price index, or PCE), consumer prices aren’t gaining the momentum the Fed would like to see. ‘I think that lack of wage pressure and inflation definitely has a huge effect on this Fed and if you look at PCE, that’s up about 1.3 percent over the past year, which is far from 2 percent,’ Wren added. ‘And I guarantee the Fed is taking that into account big time when they come into this September meeting.’ TheStreet’s Scott Gamm reports from New York.