Fed fretted in June about "spillover effects" from Greece

WASHINGTON - Greece's roiling debt crisis could push back the Federal Reserve's timing for raising interest rates.

The central bank's written account of its meeting last month showed that most policymakers did not think the U.S. economy had improved enough to warrant a hike rate. The minutes also revealed that many Fed officials expressed concern about the impact a failure to get a deal on Greek debt might have on financial markets.

The account of the June 16-17 meeting notes that "many participants expressed concern that a failure of Greece and its official creditors to resolve their differences could result in disruptions in financial markets in the euro area, with possible spillover effects on the United States."

While private economists had expected the Fed's first rate hike to occur in September, the standoff on Greek debt and the sharp plunge in Chinese stock prices have prompted many analysts to expect a delay until the end of the year.

"The probability that the Fed will raise interest rates for the first time in September is now lower than it was at the time of the FOMC meeting in June," said Nariman Behravesh, chief economist with IHS, in a note.

Members of the Federal Open Market Committee -- the Fed's rate-setting panel -- saw signs in June that the economy was healing after its winter slump, but still wanted more signs of improvement before they began raising interest rates.

Another factor that could lead the Fed to put off rate hikes is weak growth, notes Paul Ashworth, chief U.S. economist with Capital Economics. The Labor Department's June employment report showed that average hourly earnings were flat last month and are rising at an annualized rate of only 2 percent.

"Assuming that Greece's [possible] exit doesn't roil global financial markets too badly for too long, a September lift-off is still the most likely outcome," he said in a client note. "Nevertheless, we would acknowledge that the lack of any upward pressure in average hourly earnings growth in June's employment report means that the first rate hike could yet be delayed."