WASHINGTON (2/18/16)--The stock market volatility that followed the Federal Reserve’s first rate hike since the financial crisis--in addition to economic strife abroad--gave the Federal Open Market Committee (FOMC) pause during its January meeting, minutes from the meeting show.
“Several participants noted that monetary policy was less well positioned to respond effectively to shocks that reduce inflation or real activity,” the minutes said (MarketWatch Feb. 17). “Waiting for additional information regarding the underlying strength of economic activity and prospects for inflation before taking the next step to reduce policy accommodation would be prudent.”
In December, the FOMC raised the federal funds rate to a range of 0.25% to 0.5% from 0% to 0.25%.
Credit Union National Association economists expect the Fed to raise interest rates several more times this year, reaching a level of 1.25% by year end, according to their 2016 forecast.
The January meeting minutes also revealed that several FOMC members believed the underlying economic trends still warranted further reductions in monetary policy accommodation, despite the recent market turbulence.
Others, however, said they wanted to see “direct evidence” that inflation was headed toward the committee’s 2% target before raising rates for a second time.
Furthermore, if the dollar continues to strengthen and financial market volatility persists, it would only exacerbate the effects of another rate hike, committee members argued.
“The effects of these financial developments, if they were to persist, may be roughly equivalent to those from further tightening in monetary policy,” the minutes said.
The Federal Reserve’s next meeting is set for March 15-16.