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Federal Reserve policymakers voted in unison last month not to raise interest rates, but the discussions leading to the vote show considerable levels of hand-wringing over the course ahead.
January meeting minutes released Wednesday show a Fed Open Market Committee concerned over its credibility and the path it should take toward normalizing monetary policy. Issue by issue, "some," "a few" or a "couple" voiced concerns about when the central banks should begin raising rates and how it should do so.
Ultimately, though, "many" won out in determining that the days of cheap money would continue. In fact, the minutes overall showed little taste among members to begin tightening anytime soon.
"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," the minutes said.
However, the decision did not come without debate.
"Some" worried that a less accommodative Fed might run into credibility problems with a market that believes the FOMC will stay easy until inflation reaches a 2 percent target rate. Inflation is closer to 1 percent now, with few indications that pressure is building.
"A few (members) expressed concern that in some circumstances the public could come to question the credibility of the Committee's 2 percent goal," the minutes showed. "Indeed, one participant recommended that, in light of the outlook for inflation, the Committee consider ways to use its tools to provide more, not less, accommodation."
Fed watchers had been looking at the January meeting to see if the Fed would delete from its statement the word "patient" in regards to how it would proceed with normalization. The word stayed in the statement as participants worried that dropping it would skew market expectations.
"It would have been too early to discuss the removal of the word 'patient.' The middle of March is the appropriate time to do that. Should 'patient' come out out of the official communique at that time, that sets the market up to anticipate a June rate hike," Phil Orlando, chief equity strategist and portfolio manager at Federated Investors, said in a telephone interview. "We got exactly what we were expecting to get out of today's minutes, which is the Fed is going to remain patient and data-dependent."
Market reaction to the minutes was fairly muted, though futures contracts show the market's expectations for a September rate hike dimming, from 62 before before the meeting to 53 percent after.
The adherence to easy money comes even though the Fed judges the rest of the economy as growing at "a solid pace" with conditions in the job market "improved in recent months."
"Nonetheless, a number of participants suggested that they would need to see further improvement in labor market conditions and data pointing to continued growth in real activity at a pace sufficient to support additional labor market gains before beginning policy normalization," the minutes said.
The Fed noted a rapid acceleration of industrial production and believes the decline in energy prices will boost consumer spending.
As far as downsides, officials again expressed concerns with overheating in some parts of the markets, while "liquidity pressures" are a worry in the bond market.