Fed minutes reveal dovish approach to rate hikes this year

Marco Green
January 10, 2019

After four rate hikes previous year, the Fed would be "bordering on going too far and possibly tipping the economy into recession" if rates go higher, Bullard said, adding that he would be willing to cut interest rates if needed.

The prospect of rising interest rates that could slow the economy spooked investors and contributed to the downturn in United States and global stock markets late a year ago.

"Monetary policy was not on a preset course; neither the pace nor the ultimate endpoint of future rate increases was known", the minutes said.

But the Fed said policymakers would watch for incoming data to see how the economy performs amid current uncertainty about trade frictions and volatility on financial markets.

"If the economy slowed down more than we thought, or the inflation outlook deteriorated more than I'm suggesting here, there might be grounds for a little bit lower (federal funds) rate in that scenario", Bullard said.

Three of the four, Charles Evans of Chicago, Eric Rosengren of Boston, and James Bullard of St. Louis, are voting members this year on the Federal Open Market Committee, the bank's 10-member policy-setting panel. Bullard also votes this year on the FOMC.

Still, the report indicates Fed officials expect the economy to continue to grow with subdued inflation, which would make some further rate hikes necessary. Last month became the worst December for stocks since the Great Depression.

Investors were subsequently soothed by Powell's remarks on Friday that policy makers would be sensitive to the message that markets were sending about downside risks.

At the same meeting, policymakers at the US central bank voted to raise the benchmark federal funds rate for the fourth and final time in 2018, but signaled a slower pace of gradual hikes this year, expecting to hit neutral by the end of 2019.

The S&P 500 index of USA stocks has fallen 12 percent since a September peak.

The minutes note the contrast between the data on the US economy, which show strong growth, and financial markets' fears of the future.

Evans forecast USA economic growth a bit above 2 percent this year with unemployment continuing to fall. As a result, he said the Fed should raise rates "eventually" to a range of 3 percent to 3.25 percent.

"Developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions", he said.

"My own view is that the economic outlook is actually brighter than the outlook one might infer from recent financial-market movements", he said.

Other reports by Click Lancashire

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