Newspaper article International New York Times

With an Eye on Inflation, the Fed Appears Not So Eager to Raise Rates

Newspaper article International New York Times

With an Eye on Inflation, the Fed Appears Not So Eager to Raise Rates

Article excerpt

Some officials were concerned that raising rates prematurely might threaten the economic recovery.

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 policy-making 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 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 annual inflation is running well below the Fed's 2 percent goal.

"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," it said.

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.

"I don't get the sense that anybody wants to actually move in June," Ms. Swonk said. "I think they want to preserve the option, but you've still got inflation and wages not doing what you want. And that's tough."

Ms. Swonk said that disruptive winter storms in recent weeks also might put a temporary damper on economic data, giving the Fed another reason to wait just a bit longer before moving. …

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