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Fed Minutes Indicate Patient Approach To Further Rate Hikes


Minutes from the Federal Open Market Committee's latest meeting confirmed Federal Reserve Chairman Jerome Powell's recent remarks suggesting the central bank will take a patient approach to further interest rate increases.

The minutes of the FOMC's December meeting showed participants saw the appropriate extent and timing of future rate hikes as less clear than earlier.

The Fed decided to raise rates by a quarter point at the meeting, but the minutes suggest volatility in financial markets and increased concerns about global economic growth have clouded the outlook for rates.

"Against this backdrop, many participants expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming," the minutes said.

A number of participants noted it was important for the FOMC to assess the impact of increasingly pronounced risks and the effects of past rate hikes before making further changes to the stance of monetary policy.

The patient approach espoused by the minutes is similar to remarks Powell made during a joint discussion with former Fed Chairs Janet Yellen and Ben Bernanke last Friday.

Powell stressed that monetary policy is not on a "preset path" after the Fed raised interest rates four times in 2018 and forecast two rate hikes in the new year.

"Particularly with muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves," Powell said.

The Fed chief said the central bank is always prepared to significantly shift the stance of monetary policy if incoming economic data does not meet expectations.

The minutes also noted monetary policy is not on a "preset course," with participants emphasizing that the approach to setting the stance of policy should be importantly guided by the implications of incoming data for the economic outlook.

Notably, the Fed's projections provided after the meeting pointed to two interest rate hikes in 2019 compared to the previous forecast for three.

The Fed's median projection for the federal funds rate in 2019 was reduced to 2.9 percent from the 3.1 percent expected in September.

The minutes revealed participants generally revised down their individual assessments of the appropriate path for monetary policy after taking into account incoming economic data, information from business contacts, and the tightening of financial conditions.

Participants still determined that some further gradual increases in rates would most likely be consistent with achieving the Fed's dual mandate.

At the meeting, the Fed decided to raise interest rates by 25 basis points to a range of 2.25 percent to 2.50 percent, as participants generally judged that the economy was evolving about as anticipated.

"A few participants, however, favored no change in the target range at this meeting, judging that the absence of signs of upward inflation pressure afforded the Committee some latitude to wait and see how the data would develop," the minutes said.

CME Group's FedWatch tool currently indicates a 99.5 percent chance the Fed will leave interest rates unchanged at its next meeting later this month.

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