At the end of January, Federal Reserve officials decided to stop their regular campaign to raise interest rates as world economic prospects became less secure and financial markets failed to appreciate Fed's willingness to shift if the economy weakened, according to the minutes of that meeting. Released on Wednesday.
Fed officials concluded that a pause constituted "few risks" for a strong economy where prices continued to rise at a weaker rate, the protocol shows. The Fed did not see any immediate threats to America's economic expansion, but officials indicated they were worried enough about potential dangers ̵
Regardless of whether the Fed will raise prices at all in 2019, it's still unclear. The protocols show a difference between Fed officials, and several say they thought it would be appropriate to raise interest rates later this year, "if the economy evolved as expected." Others were less anxious to resume the increase, especially if inflation remained below the Fed's 2 percent target.
James Bullard, president of the Federal Reserve Bank of St. Louis, suggested to reporters this month that the Fed had gone too far with interest rate increases last year. Other officials have said in recent days that they expect interest rates to rise to resume, a view of the Federal Reserve Bank of Cleveland president, Loretta J. Mester, expressed in a speech this week.
Markets found little new information in the protocol. S & P 500, which had been negative earlier in the day, rose slightly. Issuance of government bonds barely barely.
The January meeting was a departure from the Fed from what had been a slow and steady March against higher prices and less stimulating monetary policy among a strengthened economy. After five consecutive quarters of high interest, Fed officials left them unchanged in January, as expected. But the surprised markets in the policy statement that were released after the meeting, which dropped the previous language that said "any further gradual increases" in interest rates would be justified in the coming months.
This shift seems to have been partial, a corrective note to the financial markets, which officials believed had been volatile in December on the belief that Fed officials were not sufficiently concerned about economic uncertainty at home and abroad – or willing to adopt more stimulating political measures if these uncertainties became economic. 19659002] Fed's communication after the December meeting, when officials increased the interest rate by a quarter of a percentage point, "was allegedly perceived by market participants who did not fully appreciate the tightening of economic conditions and the associated reduced risk of US economic prospects that had emerged since the fall," sa protocols.
Officials worried especially for investors did not have a clear picture of how the Fed had planned to handle the slimming of the bond portfolio as a result of the financial crisis. In addition to lowering interest rates to near zero, the Fed tried to go into the economy by buying large amounts of mortgages and government bonds, as a way to encourage investors to buy more risky assets, such as stocks.
The Fed has slowly been Winnowing's $ 4 trillion portfolio by allowing up to $ 50 billion in bonds maturing every month, but officials seemed to agree in January that the balance should end this year.
Officials agreed that "it would also be desirable to announce before long a plan to stop reducing the Federal Reserve's holdings later this year" and said the announcement "would provide more certainty about the process of completing the normalization of the size of the Federal Reserve's balance. "
The protocol also highlighted just how difficult it is for the Fed, who does not run in plain language, to always communicate their plans effectively. At the January meeting, Fed officials reported that investors perceived that the central bank was "insufficiently flexible" in both the price increase campaign and the balance sheet.
Fed officials tried to change these perceptions after both December and January meetings. Fed Mayor Jerome H. Powell said at a press conference on January 30 that officials had concluded that recent economic developments – including reduced global growth, financial market turmoil and uncertainty about trade negotiations – had pushed the central bank to "a patient," Wait and see the approach of future political change. "" We are now facing a somewhat contradictory picture of generally strong US macroeconomic performance, along with growing evidence of cross-currents, "Powell said. "At such times, common sense risk management suggests patiently and waits for greater clarity."
Curt Long, chief economist at the National Association of Federally-Insured Credit Unions, said that the protocols showing the transition to a more "patient" attitude were Greg McBride, financial analyst for Bankrate.com, was more blunt: "Obviously, the Fed was the rattle of the markets and caved, "he wrote on Wednesday.
The mint show Fed officials so little inconvenience to the shift. They show officials "pointed out a number of considerations that supported a patient approach to monetary policy," including the need for additional financial data, which will help policymakers to better measure business and consumer sentiment.
The Fed also believed it was patiently giving more time to determine the effect of President Trump's trade war with China and other countries and the economic damage from the long-term government shutdown, which had not been resolved at the January meeting.
"Information coming in the coming months may also shed light on the effects of the recent partial federal government's closure on the US economy and on the results of the budget negotiations taking place in the wake of the closure, including the possible implications for the fiscal path," said the protocol. 19659002] Pause had the desired effect with investors, as markets celebrated that news with a rally which has since continued.
Other critics of the Fed's interest rate campaign also appear to have been satisfied, Mr. Trump – who has repeatedly criticized Fed to raise interest rates – ate with Mr. Powell soon after the meeting Many liberal economists also cheered on the move to slow interest rates, saying it would help workers continue to bend the labor market and potentially increase wages.