Many Federal Reserve officials believe the recent global economic and financial turbulence have increased the downside risks for the outlook of the U.S. economy, minutes of the Fed's latest monetary policy meeting showed Wednesday.
"Participants judged that the overall implication of these developments for the outlook for domestic economic activity was unclear, but they agreed that uncertainty had increased, and many saw these developments as increasing the downside risks to the outlook," according to the minutes of the Fed's Jan. 26-27 meeting released Wednesday.
The Fed kept its target range for the federal funds rate unchanged at 0.25 percent to 0.5 percent last month, after raising the interest rates in December for the first time in nearly a decade, which marked the end of an era of extraordinary easing monetary policy.
In its January policy statement, the Fed said the central bank "is closely monitoring global economic and financial developments and is assessing their implication for the labor market and inflation," but declined to make a judgement about the balance of risks to the U.S. economy.
"Members generally agreed that the implications of the available information were not sufficiently clear to allow members to assess the balance of risks to the economic outlook in the Committee's postmeeting statement. However, members observed that if the recent tightening of global financial conditions was sustained, it could be a factor amplifying downside risks," the minutes said, referring to officials of the Fed's policy-setting committee.
The minutes showed that almost all Fed officials noted signs of tighter financial conditions in the United States at the meeting, citing evidences of "declines in equity prices, a widening in credit spreads, a further rise in the exchange value of the dollar, and an increase in financial market volatility."
"The effects of these financial developments, if they were to persist, may be roughly equivalent to those from further firming in monetary policy," the minutes said. Fed Chair Janet Yellen signaled last week the central bank still expected to gradually raise interest rates as the labor market continued to strengthen, but flagged risks that could delay any further moves.
"Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further," Yellen said. Most economists believe the increased downside risks for the U. S. economy have raised the bar for hiking interest rates at its next policy meeting in March.
Only 9 percent of the business and academic economists predicted the Fed would raise interest rates in March, while roughly 60 percent of economists said the central bank would wait until June to hike interest rates, the latest survey conducted by the Wall Street Journal indicated.
Boston Federal Reserve Bank President Eric Rosengren said Tuesday the Fed should not be in a hurry to raise interest rates if headwinds from the global economy and financial markets persist.
"Should these conditions persist, and slow progress on attaining the Fed's dual mandate, I believe the normalization of monetary policy should be unhurried, and wait for economic data to improve," Rosengren said.
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