US central bankers “can afford to be patient” before raising interest rates again, given low inflation and uncertainty about the outlook, the minutes of the Federal Reserve’s policy meeting last month showed.
While they continue to expect “some” rate hikes at some point, there would be a “relatively limited amount,” the minutes of the rate-setting Federal Open Market Committee’s Dec. 18 to Dec. 19 meeting showed.
The timing is “less clear” due to a contrast between the solid US economic data, and fears of a possible downturn amid rising trade confrontations displayed by financial markets and expressed by businesses, the report said.
“Against this backdrop ... especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming,” the minutes said.
US and global stock markets retreated sharply in the closing weeks of last year amid the US-China trade dispute and fears that rising interest rates could slow the economy.
However, the Fed said that policymakers would watch for incoming data to see how the economy performs amid current uncertainty about trade frictions and volatility on financial markets.
“Monetary policy was not on a preset course; neither the pace nor the ultimate endpoint of future rate increases was known,” the minutes said.
The Fed raised its benchmark interest rates last month for the fourth time last year, but the minutes said “a few” participants favored holding off, saying there was “latitude to wait and see.”
Fed Chairman Jerome Powell also sought last week to reassure financial markets, saying that policymakers would be “patient” before making any further moves as they watched to see how the economy evolved, and could react quickly to any changes.
Three Fed officials — who are to become voting members of the committee this year — on Wednesday gave similar statements, saying that they have the flexibility to wait before making decisions about the next move.
Federal Reserve Bank of Boston President Eric Rosengren said financial markets had become “unduly pessimistic” about the economic outlook, but like others, he agreed that policymakers should heed their warning.
Federal Reserve Bank of St Louis President James Bullard, in an interview with the Wall Street Journal, said that the US central bank would be “bordering on going too far and possibly tipping the economy into recession” if rates go higher.
The next meeting is set for Jan. 29 and Jan. 30.
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