Newspaper article International New York Times

Fed Stood Pat on Growth Concerns ; Global Economic Cooling, Especially in China, Was Factor in Rate Decision

Newspaper article International New York Times

Fed Stood Pat on Growth Concerns ; Global Economic Cooling, Especially in China, Was Factor in Rate Decision

Article excerpt

Worries that inflation would continue to lag because of weaker economic growth abroad, particularly in China, helped nudge policy makers.

Worries that inflation would continue to lag because of weaker economic growth abroad, particularly in China, helped nudge members of the United States Federal Reserve to postpone dialing back on their stimulus campaign last month, according to the official summary of a meeting released by the central bank.

Fed officials signaled throughout much of the summer that they were getting ready to raise interest rates in the fall, after keeping their benchmark interest rate close to zero since the end of 2008. But the effect of a slowdown on American exports and commodity prices, combined with fewer signs of inflation, stayed their hand at their two-day meeting in mid-September.

"Participants anticipated that recent global developments would likely put further downward pressure on inflation in the near term; compared with their previous forecasts, more now saw the risks to inflation as tilted to the downside," the summary released on Thursday said.

The minutes from the September gathering of the bank's policy- making group, the Federal Open Market Committee, offered a deeper look into the thinking behind a close-call decision.

"In part because of the risks to the outlook for economic activity and inflation, the committee decided that it was prudent to wait for additional information," the Fed said in the minutes.

Analysts saw few surprises in the newly released report, but several disagreed on what it revealed about the likelihood that the Fed would raise its main rate before the end of the year.

"They still think everything is on track," said Mark Zandi, the chief economist at Moody's Analytics, "but they want to make absolutely sure, given how poorly things are going overseas and how strong the dollar is."

In a speech delivered a week after the committee meeting, the Fed chairwoman, Janet L. Yellen, maintained that the bank was still preparing to raise its benchmark rate this year as long as the economy stayed on track.

That assessment was reflected in the minutes: "Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year."

But after the Labor Department reported this month that job growth in September was a disappointing 142,000 and that the labor force participation rate had fallen amid further stagnation in average hourly wages, many analysts scaled back their expectations for a Fed liftoff from the so-called zero bound.

It turns out that reading the Fed minutes can be a "Rashomon"- like exercise with analysts drawing widely varying conclusions from the same material. …

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