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Increased risks noted in FOMC minutes
Members of the Federal Open Market Committee (FOMC) – the Federal Reserve's monetary policy-setting arm – noted that "some risks to the downside [of economic activity] had increased, including the possibilities of a sharper-than-expected slowdown in global economic growth," according to minutes from the committee's January meeting released Wednesday.
Some of the global challenges noted by participants were uncertainties surrounding Brexit, an escalation in international trade policy and the possibility of additional extended federal government shutdowns.
Following the January meeting, the committee left the federal funds target rate at a range of 2.25 to 2.5 percent. NAFCU Chief Economist and Vice President of Research Curt Long also predicted that there would be no more than one rate hike in 2019. The committee previously pared its projection for 2019 rate hikes from three to two, but January's minutes indicated several participants thought a rate hike would only become necessary if inflation outcomes were higher than their baseline outlook.
"The minutes from the FOMC's January meeting portray a committee that remains optimistic in its economic outlook, but which is alert to rising risks," Long said. "Considerations of those risks drove the committee to emphasize its 'patient' mantra with respect to future rate hikes.
"That is certainly a nod to jittery markets, which seem to have been comforted by the shift in tone from December, when the committee projected two rate hikes for 2019. As things stand now, a rate increase in the first half of 2019 is very unlikely," he added.
Wednesday's minutes also revealed:
- the potential to announce soon a plan to stop reducing the Fed's asset holdings later this year;
- sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2 percent objective are the most likely outcomes over the next few years;
- residential investments declined again in the fourth quarter, reflecting decreases in the affordability of housing; and
- financing conditions in consumer credit markets tightened, but, on balance, remained generally supportive of growth in household spending, which increased during the fourth quarter.
The FOMC will meet again March 19-20.