Federal Reserve policy makers highlight increased uncertainty and growing risks in January meeting
Interest rate setters at the US Federal Reserve said it was premature to alter their economic outlook given strong financial market turbulence this year. However, they had become more cautious, emphasising that risks had increased.
"Domestic financial conditions tightened over the inter-meeting period, as turmoil in Chinese financial markets and lower oil prices contributed to concerns about prospects for global economic growth and a pullback from risky assets," the minutes of the January meeting said.
"While acknowledging the possible adverse effects of the tightening of financial conditions that had occurred, most policymakers thought that the extent to which tighter conditions would persist and what that might imply for the outlook were unclear, and they therefore judged that it was premature to alter appreciably their assessment of the medium-term economic outlook."
US stocks edged up slightly, with the Dow Jones Industrial Average climbing nearly 50 points to 16,450 after building on earlier gains. Despite saying it was premature to make judgements on how financial market volatility would impact growth, Federal Reserve officials believed uncertainty and risk had risen.
"Given their increased uncertainty about how global economic and financial developments might evolve, participants emphasized the importance of closely monitoring these developments and of assessing their implications for the labor market and inflation."
"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."
After the Federal Reserve raised interest rates 0.25 percentage points at in December, some analysts speculated it may have to backtrack after some economic data turned out weaker than expected and global share prices dived. However, elements of the minutes suggest further interest rate hikes in the coming months are still on the cards.
Kevin McNeil, a rate strategy analyst at Royal Bank of Scotland in New York told City PM:
Just two or three members mentioned wanting to see actual progress on inflation before hiking. A June increase in rates is still on track, and I think is the most likely outcome if financial conditions hold. If things get better as we’ve seen in the last week or so April come back on the table.