WASHINGTON (Reuters) – Federal Reserve policymakers expressed concern last month that raising interest rates too soon could pour cold water on the US economic recovery, and fretted over the impact of dropping “patient” from the central bank’s rate guidance.
The minutes from the Fed’s Jan 27-28 policy-setting meeting, released on Wednesday,
show officials grappling to square solid US economic growth with the weakness in international markets as well as worrying about falling inflation expectations in the United States.
Fed officials debated the impact that stubbornly low inflation measures were having on the central bank’s confidence in moving ahead with the rate hike plan, the minutes from the Federal Open Market Committee meeting showed.
The central bank is targeting June as the month to begin raising rates, Fed policymakers have indicated.
The minutes shed light on the depth of the Fed’s inflation debate and highlight the desire of policymakers to keep interest rates lower for longer.
“I think it’s probably much more dovish than anybody anticipated, that’s for sure,” said Greg Peters, senior investment officer at Prudential Fixed Income, referring to the minutes.
“I think June is going to be hard for them to move, but that’s not to say they won’t.”
In its January policy statement, the Fed gave a nod to turmoil in markets across the globe, saying it would take “financial and international developments” into account.
It was the first time since January 2013 that the Fed made an overt reference to overseas economic events in its policy statement.
The minutes offered a more detailed view of the overseas concerns, with policymakers noting how China’s economic slowdown and tensions in the Middle East and Ukraine posed downside risks to the US economic growth outlook.
The “international” reference in January led bond investors to quickly bet that the Fed would wait longer to raise rates, but bond yields have shot higher since early February.