US Federal Reserve officials struggled last month to assess when economic data might prompt them to raise interest rates from record lows — and how best to convey their intentions to investors.
Minutes of the Fed’s Jan. 27-28 meeting released on Wednesday suggest that policymakers are not ready to start raising rates any time soon, with some expressing concerns about excessively low inflation, lingering weakness in the US job market and economic threats overseas.
The Fed’s benchmark interest rate has been near zero since December 2008.
Many officials “observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions,” said the minutes, released after a customary three-week delay.
Analysts said they believed the minutes made a June rate hike less likely, given the concerns expressed by various Fed officials about the state of the economy.
“A fair number of policymakers still want reassurance that growth will remain strong and inflation will return to the 2 percent target before beginning the normalization process,” BMO Capital Markets senior economist Sal Guatieri said.
He added that the minutes raised the odds that the first rate hike will be delayed until September or possibly even later.
Wall Street investors reacted favorably to the minutes. Losses in the stock market eased and bond prices rose, pulling the yield on the 10-year note down to 2.07 percent from 2.14 percent late on Tuesday.
The minutes indicate that policymakers were worried about dropping the word “patient” to describe how long they were willing to wait, fearing that financial markets might overreact. They also were unable to determine what exactly they needed to see in economic data to begin normalizing monetary policy.
What they did agree on was that “it would be difficult to specify in advance an exhaustive list of economic indicators and the values that these indicators would need to take.”
On one hand, job growth has been encouraging and the unemployment rate was 5.7 percent last month, which was close to the Fed’s goal of maximum employment at between 5.2 percent and 5.5 percent.
However, Fed officials said wage growth has remained weak even as the unemployment rate has fallen. They also discussed at length their concerns about stubbornly low inflation, which remains below the Fed’s 2 percent target. Several officials warned that the credibility of that target could be undermined if they raised rates despite low inflation.
Fed officials outlined various overseas threats to US growth, including a stronger US dollar, slowing growth in big economies like China and political tensions in the Middle East and Ukraine.
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