The Federal Reserve is not sounding like an institution that is ready to raise its benchmark interest rate in June. Fed officials at their most recent policymaking meeting in January worried that economic growth remained fragile, and that raising rates prematurely could undermine recent gains, according to an official account released Wednesday.
The account also described greater concerns than the Fed had disclosed previously about the sluggish pace of inflation and the decline of inflation expectations among investors. “You can almost hear a little hesitation in the committee,” said Zach Pandl, senior interest rate strategist at the investment firm Columbia Management. “They sound confident on the economy but nervous on pulling the trigger on rate hikes.”
The economy is growing strongly, and the statement the Fed issued after the January meeting was its most upbeat since the end of the recession in 2009. That optimism has since been reinforced by the government’s latest jobs report, released this month, which estimated that strong employment gains at the end of 2014 continued at a healthy pace in January.
The Fed has gained enough confidence in the strength of the recovery that officials spent much of the January meeting discussing various aspects of raising the Fed’s benchmark interest rate, which they have held near zero since December 2008.
At the meeting, some officials argued, as they have publicly, that there is a growing risk the Fed will wait too long before raising rates. Yet the account suggested that the Fed’s chairwoman, Janet L. Yellen, and most members of her committee continue to regard the stimulus campaign as necessary. It said that many officials were concerned that raising rates prematurely “might damp the apparent solid recovery,” potentially forcing the Fed to reverse course.
It also noted that fewer officials were concerned about the appearance of raising rates when inflation is running well below the Fed’s 2% goal.
“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalisation had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time,” it said. The minutes were released after a standard three-week delay.
Diane Swonk, chief economist at Mesirow Financial in Chicago, said the account reinforced her view that the Fed would wait until September to begin raising short-term rates and would continue to move slowly thereafter.
Uncertainty about the evolution of the Fed’s intentions has been heightened in recent months by a dearth of public comments by Yellen and other senior officials. Some of that fog may lift next week, when Yellen is scheduled to testify on monetary policy and the outlook for the economy before committees of both the House and the Senate.
Fed officials have long pointed toward June as the most likely timing for a first rate increase, but sluggish inflation appears to be prompting second thoughts.