Federal Reserve economists were divided over how "transitory" recent weakness in US inflation data was, according to minutes from their latest monetary policy meeting which cast doubt over the timing of the next rate hike.
Minutes published today from the meeting on 25-26 July said: "some participants expressed concern about the recent decline in inflation".
Several members thought risks to the inflation outlook "could be tilted to the downside" at the meeting, in which they voted to hold the key federal funds rate at a target range of 1-1.25 per cent.
The views of the members of the rate-setting Federal Open Market Committee (FOMC) were "generally ... little changed" from the previous meeting in June, but the minutes noted that "participants expected that inflation on a 12-month basis would remain somewhat below two per cent in the near term".
However, the minutes also noted that "one view" of economic developments meant that "a tighter monetary policy than otherwise was warranted".
Investors have been awaiting signs the US central bank will raise interest rates for the third time this year – as had been forecast by FOMC members at the start of the year – but recent weaker inflation readings had cast doubt on the Fed's efforts at policy normalisation.
"FOMC members remain split on just about everything except the balance sheet," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The strong bias in favor of gradual tightening remains, but nervousness over the recent inflation data is very clear."
The yield on US 10-year Treasuries fell back to levels reached yesterday, at lows of 2.222 per cent at the time of writing, after the minutes were released. Bond yields move inversely to prices. The dollar weakened slightly against a basket of major currencies to reach its lowest since yesterday morning.
Meanwhile the Fed plans to defer a decision on starting to pare back its enormous balance sheet "until an upcoming meeting", giving investors a little more detail as to when it will stop buying securities under its bond purchase programme. The next meeting is due on 20 September.
"Several" of the policymakers thought the central bank should have already announced a date to stop the reinvestment of proceeds from maturing securities that keeps the Fed's total balance sheet at $4.5 trillion in securities.
The move to stop the unwinding will be a seminal moment in the decade-long effects of the financial crisis, during which the Fed and other central banks decided to buy bonds in an effort to support the economy known as quantitative easing.
The central bank also noted that "uncertainty about the direction of some economic policies was judged to have remained elevated". The meeting took place after US President Donald Trump repeatedly failed to signature healthcare legislation, casting doubt on his ability to pass tax reform or infrastructure spending packages.