Trade, market volatility among Fed worries

Threats to economy raise questions on future rate rises, meeting records show

In this Dec. 19, 2018, file photo the Federal Reserve Chairman Jerome Powell speak at a news conference in Washington.
In this Dec. 19, 2018, file photo the Federal Reserve Chairman Jerome Powell speak at a news conference in Washington.

WASHINGTON -- Federal Reserve officials expressed increasing worries when they met last month, as they grappled with volatile stock markets, trade tensions and uncertain global growth. The threats, they said, made the future path of interest rate increases "less clear."

According to minutes of the Fed's December gathering released Wednesday, officials believed that with inflation still muted, the central bank could afford to be "patient" about future rate increases. While the Fed did approve a fourth rate increase for the year, the minutes show that a "few" Fed officials argued against raising rates at the meeting.

The Fed trimmed its projection of possible rate increases in 2019 from three down to two. But many private economists think the central bank could end up raising rates just once this year if the economy slows significantly.

"Participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier," the minutes said.

The minutes said that based on recent developments, Fed officials judged that a "relatively limited amount of additional tightening would likely be appropriate."

The minutes covered the Dec. 18-19 meeting at which the central bank raised its benchmark rate for the fourth time in 2018, pushing the policy rate to a range of 2.25 percent to 2.5 percent.

Financial markets were not pleased, and stocks fell sharply. The drop was blamed in part on comments Fed Chairman Jerome Powell made at a news conference after the announcement in which he seemed to emphasize the strength of the economy more than possible downside risks.

However, in an appearance Friday, Powell struck a somewhat different tone, stressing that with inflation remaining muted, the Fed could afford to be "patient" in determining when to increase rates this year. The minutes delivered a similar message.

Powell is scheduled to speak again today before the Economic Club of Washington in remarks that will be closely watched for further clues about the Fed's current thinking.

"There is no pre-set path for policy," Powell said in his comments last week, which helped to send the market up by 746 points on Friday. "With the muted inflation readings we have seen coming in, we will be patient as we watch to see how the economy evolves."

The minutes made no reference to any of the criticism President Donald Trump has leveled at Powell and the Fed for the series of rate increases that Trump has blamed for pushing the stock market down.

Last month became the worst December for U.S. stocks since the Great Depression, with the rout continuing after Bloomberg News reported that Trump had discussed firing Powell.

The minutes cited rising concern among business contacts about the effect of Trump's trade policies, which have imposed punitive tariffs on imports from China and other nations in an effort to trim America's large trade deficit.

The minutes were released with the usual customary three-week lag after the meeting.

Eric Rosengren, president of the Fed Bank of Boston, told a Boston audience that the Fed is puzzling through the recent divergence between strong economic data and faltering financial markets.

"At this juncture, with two very different scenarios -- economic slowdown implied by financial markets; or growth somewhat above potential GDP growth, consistent with economic forecasts -- I believe we can wait for greater clarity before adjusting policy," he said.

Charles Evans, president of the Fed Bank of Chicago, delivered a similar message in a speech Wednesday in Riverwoods, Ill. "I feel we have good capacity to wait and carefully take stock of the incoming data and other developments," he said.

Both men spoke in favor of the Fed's rate increases last year, and both hold rotating votes on the Fed's policy committee.

James Bullard, president of the Fed Bank of St. Louis, who opposed the rate increases last year, told The Wall Street Journal on Tuesday that he, too, favors a pause.

The Fed is "bordering on going too far and possibly tipping the economy into recession," Bullard said. He added that other Fed officials were coming around to his position that the central bank should pause.

Information for this article was contributed by Martin Crutsinger of The Associated Press, by Binyamin Appelbaum of The New York Times and by Craig Torres of Bloomberg News.

Business on 01/10/2019

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