• Reuters

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The Federal Reserve has been surprised by how quickly the U.S. labor market is healing but doesn’t want to bring forward a planned rate hike until the recovery looks more convincing, according to minutes of its last policy meeting.

Policymakers “generally agreed” improvements in the labor market over the last year had been “greater than expected,” according to minutes of the central bank’s July 29-30 meeting released on Wednesday.

The Fed had said in its policy statement following the meeting that there was “significant” labor market slack, but the minutes showed many members of its policy-setting panel thought this characterization “might have to change before long.”

“Labor market conditions had moved noticeably closer to those viewed as normal in the longer run,” the minutes said.

Still, most policymakers felt any change in their view on when to start raising rates “would depend on further information on the trajectories of economic activity, the labor market and inflation.”

The minutes also showed Fed officials had largely agreed on many elements of a framework for eventually raising rates from near zero, with almost all of them agreeing it would be appropriate to retain the overnight federal funds rate as their key target.

Almost all of the officials said they would keep targeting a quarter-percentage point range for the federal funds rate, which they have kept between zero and 0.25 percent since late in 2008.

To establish the upper bound of future target ranges, most policymakers expected to rely on the rate the Fed pays commercial banks on the excess cash they park at the central bank. The bottom of the range would be set at the same rate the bank plans to pay on overnight reverse repurchase operations.

U.S. stock prices trimmed gains after the release of the minutes but quickly recovered the lost ground. At the same time, the dollar firmed against major currencies and yields for 10-year Treasury notes moved higher.

Interest rate futures continued to point to a first Fed rate hike next July, although the chances of an earlier move ticked slightly higher.

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