Minutes of the June 16-17 discussions released Wednesday showed that while one Fed official was ready to begin hiking rates at the meeting, "most participants" believed that conditions were not yet ripe for an interest rate increase.
The minutes revealed that many Fed officials expressed concern about the impact a failure to reach a deal on Greek debt might have on financial markets. They also mentioned concerns about future growth in China and other emerging markets.
While private economists had expected the Fed's first rate hike to occur in September, the recent standoff on Greek debt and the sharp plunge in Chinese stock prices — which emerged after the Fed's June gathering — have prompted many analysts to expect a delay until the end of the year.
"Since the June meeting, much has changed on the world stage, none of it particularly good for the U.S. economy," said Sal Guatieri, senior economist at BMO Capital Markets.
The minutes of the June meeting were released with the customary three-week lag after the meeting. The Fed took note in its policy statement of the rebound that had occurred in the U.S. economy since it stalled in the first quarter.
It highlighted progress in various sectors including manufacturing and housing. The Fed officials said that the cumulative gains in the job market over the past year had been "substantial" but that they wanted to see further progress, including evidence of stronger wage growth.
The Fed's policy statement and comments made by Fed Chair Janet Yellen at her news conference supported many economists' views at the time that the central bank was moving closer to raising interest rates for the first time in nearly a decade. Many analysts pegged September.
However, recent events including the Greek debt crisis, plunging stock values in China and a somewhat disappointing June jobs report in the United States have led many economists to push back the date of the first rate hike.
The developments overseas are already affecting global financial markets and could hurt the U.S. economy, in part by pushing the value of the dollar higher and dragging U.S. exports. A stronger dollar also lowers U.S. inflation at a time when the Fed would like to see inflation move closer to its target of 2 per cent annual price increases.
Brian Bethune, an economics professor at Fisk University in Boston, said he believed the recent developments, including the disappointing June jobs report, had greatly reduced the chance of a September rate hike. The Fed's next meeting is July 28-29, but economists had already ruled out the possibility of a rate increase then.
"I think the earliest window for a Fed rate increase will be December," Bethune said. "There are just too many problems right now in China and too many problems in Europe. A rate hike would be another shock to the system."
Financial markets are awaiting a speech Yellen is scheduled to give Friday for an updated assessment on her views of the economy. In addition, she will deliver the Fed's mid-year outlook on the economy during two days of testimony next week before House and Senate committees.
Paul Ashworth, chief U.S. economist at Capital Economics, said that markets will put greater weight on Yellen's upcoming comments than on the views expressed in the minutes, given all the developments since the meeting.
The minutes did say the Fed had adopted a staff proposal that when the central bank does start raising rates, it will also release an "implementation note" that will describe the specific measures the Fed will employ to achieve its target for its key policy lever, the federal funds rate. That overnight bank borrowing rate has been at a record low near zero since December 2008.