(Reuters) – Federal Reserve policymakers thought pausing on U.S. interest rate hikes last month posed little risk and plenty of benefit, minutes from their Jan. 29-30 meeting showed, giving them time to assess the effects of a global slowdown and the Fed’s rate hikes to date on U.S. economic momentum.
“Many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year,” according to the official record of the Fed’s most recent policy meeting, released on Wednesday. “Several of these participants argued that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook.”
The U.S. central bank caught markets off guard last month by suspending a three-year campaign to raise interest rates, saying it would be patient about making any adjustments to its target range for short-term interest rates, now at between 2.25 percent and 2.5 percent.
It also signaled it may slow or end reductions to its $4 trillion balance sheet, a process it had previously characterized as being on automatic pilot.
The surprisingly dovish decision came amid mounting headwinds to U.S. growth, including slowing Chinese and European economies and waning stimulus from the 2018 U.S. tax cuts.
Unanswered was the question of how long the Fed would remain “patient” on policy, and if the central bank’s next policy move would be to ease, rather than tighten, policy.
A raft of Fed policymakers speaking since the Fed’s January pledge of patience have insisted the economy is in a good place.
But doubts have remained, with traders in U.S. interest-rate futures placing increasing bets that the Fed will need to ease policy by early next year to counter a downturn.
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