Federal Reserve policy makers judged that risks facing the U.S. economy argued for keeping interest rates near record lows for longer, minutes of their most recent policy meeting showed.
“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time,” according to a record of the Jan. 27-28 Federal Open Market Committee meeting released on Wednesday in Washington.
The committee, while considering risks to be “nearly balanced,” pointed to a strengthening dollar, international flash points from Greece to Ukraine, and slow wage growth as weakening the case for the first rate rise since 2006.
The FOMC said after its last meeting it “can be patient” as it considers when to raise the benchmark interest rate, even as it described the labor market as “strong.” A report the following week showed payrolls rose more than forecast in January to cap the strongest three-month gain in 17 years.
Most officials expect to raise rates this year and are weighing encouraging news on growth and the labor market against too-low inflation to judge the correct moment for liftoff.
While the panel’s Jan. 28 statement received unanimous backing from voting members, the minutes showed diverging views over when the first increase may be appropriate.
“Some observed that, even with these risks taken into consideration, the federal funds rate may have already been kept at its lower bound for a sufficient length of time, and that it might be appropriate to begin policy firming in the near term,” the minutes said.
The argument for raising rates sooner has been bolstered by unexpected labor-market strength. Non-farm payrolls rose by more than 1 million jobs from November through January. The economy grew 2.4 percent in 2014, the most in four years.
At the same time, a plunge in oil prices has kept inflation on check. Consumer prices as measured by the Fed’s preferred gauge rose 0.7 percent in December from a year earlier, and the rate has lingered below the central bank’s 2 percent goal since March 2012.
Fed Chair Janet Yellen has said the committee will want to be “reasonably confident” before it raises rates that inflation will move back up toward 2 percent over time.
“Several participants saw the continuing weakness of core inflation measures as a concern,” the minutes said.
The minutes also noted that “tepid nominal wage growth, if continued, could become a significant restraining factor for household spending.”
FOMC members ackowledged that market-based measures of inflation expectations had declined in recent months.
“A number of participants emphasized that they would need to see either an increase in market-based measures of inflation compensation or evidence that continued low readings on these measures did not constitute grounds for concern,” the record of the meeting said.
A gauge of expectations for inflation starting five years from now, based on Treasury securities, dropped to as low as 1.75 percent last month, data compiled by the Fed show.
Policy makers also discussed risks to the global economy. In their last statement they added “international developments” to the list of issues they will take into account when determining when to raise rates, in addition to employment, inflation and financial markets.
Policy makers concluded that a number of developments “had likely reduced the risks to U.S. growth,” including foreign central banks adding accommodation. They said lower oil prices were “potentially exerting a stronger-than-anticipated positive effect” on global and U.S. growth.
Fed officials also identified potential risks. They expected the rising value of the dollar “to be a persistent source of restraint” on exports, and a few participants said the greenback may appreciate further.
China’s slowing economy was seen as a “factor restraining economic expansion in a number of countries,” the minutes show. Officials also cited continuing risks from “global disinflationary pressure,” tensions in the Middle East and Ukraine, and “financial uncertainty in Greece.”
The U.S. economy has been strengthening while other major economies have struggled. The European Central Bank, worried about outright deflation, last month announced a plan to purchase 1.1 trillion euros ($1.2 trillion) of bonds.
China, the world’s second-largest economy, also posted the slowest growth last year since 1990.
Fed officials are also monitoring Greece, where a new government could run out of money by March and be forced to choose between breaking election promises or abandoning the euro. The conflict between Ukraine and Russia is another source of concern to policy makers.
The FOMC is next scheduled to meet March 17-18.
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