US Federal Reserve officials stressed “patience” in waiting to raise interest rates, worrying about weaker foreign economic growth and the stronger US dollar, minutes of their policy meeting last month showed on Wednesday.
Participants at the Federal Open Market Committee (FOMC) meeting discussed their concerns about the stronger US dollar amid stuttering growth in the eurozone, slowdowns in China and Japan, and elevated geopolitical risks.
The greenback in particular had firmed against the euro, the yen and the British pound.
“Some participants expressed concern that the persistent shortfall of economic growth and inflation in the eurozone could lead to a further appreciation of the dollar and have adverse effects on the US external sector,” the minutes said.
“Several” of the participants added “that slower economic growth in China or Japan, or unanticipated events in the Middle East or Ukraine might pose a similar risk.”
There was no mention of the overseas growth or dollar concerns in the FOMC’s policy statement on Sept. 17, in which the central bank left its zero interest rate unchanged since late 2008 and took another step toward winding up its massive asset-purchase program known as quantitative easing (QE).
“The minutes appear less hawkish than anticipated, as there was concern about the health of the eurozone economy and the potential impact of an appreciating dollar on both US exports and inflation,” Ryan Sweet of Moody’s Analytics said.
The FOMC statement repeated the “considerable time” formula for an eventual rate hike after it winds up QE, expected after the Oct. 28/29 meeting, although some officials wanted to drop the language.
“The concern was raised that the reference to ‘considerable time’ in the current forward guidance could be misunderstood as a commitment rather than as data dependent,” the minutes said.
However, participants noted that the current formulation of the FOMC’s outlook “clearly indicated” that the committee’s policy decisions were conditional on its ongoing assessment of progress and expected progress toward the central bank’s dual mandate of maximum employment and 2 percent inflation.
Some participants saw the current forward guidance as appropriate in terms of risk-management considerations, “which suggested that it would be prudent to err on the side of patience while awaiting further evidence of sustained progress toward the Committee’s goals.”
In the view of those officials, under current conditions raising rates could have greater downside shocks to the economy, as it makes a modest recovery, than boost it, because “it would be less problematic to remove accommodation quickly, if doing so becomes necessary, than to add accommodation,” the minutes said.
Markets reacted strongly to the Fed minutes that appeared to suggest a slower-than-anticipated approach to tightening credit.
Wall Street stocks soared, with the blue-chip Dow Jones Industrial Average swinging up more than 200 points after scoring only an 80 point gain before they were released.
Asian markets mostly rose yesterday. Sydney rallied 1.06 percent, or 55.43 points, to close at 5,296.7 and Shanghai gained 0.28 percent, or 6.58 points, to 2,389.37, while Hong Kong jumped 1.13 percent in late exchanges.
However, Tokyo, which rallied in morning trade, slipped 0.75 percent, or 117.05 points, to 15,478.93, owing to the yen’s strength.
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