Federal Reserve officials acknowledged that the policy path ahead is “less clear” after approving an interest rate hike at their most recent meeting.
Minutes released Wednesday from the Federal Open Market Committee gathering in December showed the rate hike came with reluctance from a few members who thought the lack of inflationary pressures argued against another increase.
The officials agreed that “some further gradual increases” in the benchmark funds rate would be appropriate. What that would translate to in practical terms, though, became less clear for a central bank that only a few months earlier was pointing to four hikes in 2019.
The minutes noted that the low-inflationary backdrop means the Fed can “afford to be patient about further policy firming.”
The indecision was reflected in rate forecasts among individual members. Officials cut their expected moves this year from four to two, citing a range of concerns about growth and volatility in the financial markets.
Fed Chairman Jerome Powell, in remarks on Friday while seated next to his predecessors Janet Yellen and Ben Bernanke, said policymakers will be “patient” when approaching policy decisions. As reflected in the minutes, sentiment among Fed officials is that the economy remains strong, but they’re attuned to downside risks that the market perceives.
Among those cited most prominently were “the possibilities of a sharper-than-expected slowdown in global economic growth, a more rapid waning of fiscal stimulus, an escalation in trade tensions, a further tightening of financial conditions, or greater-than-anticipated negative effects from the monetary policy tightening to date.”
The statement after the December meeting replaced the phrase “the Committee expects that further gradual increases” would be appropriate, to “judges that some further gradual increases” are coming. Using “judges,” the minutes noted, was a signal to markets of the data-dependency the Fed will employ. Also, “some” was meant to imply a “relatively limited amount” of hikes would be coming.