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Fed retreated from further interest rate hikes due to unease on economy, low inflation, FOMC minutes show




Chairman Jerome Powell and other senior officials at the Federal Reserve say "patience" is the word when it comes to raising U.S. interest rates.

The Federal Reserve's decision in March to lease interest rates this year was driven by unease over the U.S. and global economies and surprisingly subdued inflation, according to minutes of the pivotal central bank meeting

Last month the Fed aborted previous plans to keep raising a key short term U.S. interest. Instead, Chairman Jerome Powell reiterated the Fed would remain "patient," with the central bank's closely watched "dot plot" pointing to no increase in interest rates for 201

9.

On the Fed's list of worries: Sluggish U.S. growth early in the new year, a global economy, the messy attempt by the U.K. to leave the European Union and establish trade tensions between the Trump administration and China

"A majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely leave the target range unchanged for the remainder of the year, "the minutes said.

What the Fed wasn't worried about was rising inflation.

"It was noteworthy that [inflation] had not shown greater signs of firming in response to strong labor market conditions and rising nominal wage growth, as well as to the short-term upward pressure on prices arising from tariff increases," the minutes of the March 19-20 meeting said.

Read: Highlights of the Fed minutes

"Several" Fed members even suggested inflation might be able to meet the central bank's longstanding 2% target.

They wondered if the bank's periodic forecasts for the level of fed funds, known as the dot plot, were confusing investors. Powell has already said the Fed is reviewing whether it should change how it communicates its forecasts to the public.

U.S. stocks

                            
                            
                                  
      
      
      
      
      
      
      
                                  
                                     DJIA, + 0.03%

SPX, + 0.35%

rose on Wednesday after the minutes and markets closed slightly higher. The 10-year Treasury yield

                            
                            
                                  
      
      
      
      
      
      
      
                                  
                                     TMUBMUSD10Y, + 0.23%

slipped to 2.47%.

Balance-sheet plans

At the March meeting, the Fed also announced it would stop selling off assets in its $ 4 trillion portfolio or government and mortgage-related bonds by September, another move aimed at shoring up the economy and ensuring stability in the US banking system

The minutes revealed a debate in the Fed about when the bank should resume purchases of Treasurys after the ends the balance-sheet runoff.

Several wanted to resume purchases "relatively soon," the minutes showed, but "some" preferred to let the average level of reserves decline naturally for hopes that it would give the Fed a sense of underlying demand at banks.

The outcome of such a debate, though arcane, is important. Some outside the critics contend the Fed balance sheet sheet contributed to the stock market meltdown in December. Senior Fed officials want to make sure whatever they're doing in the U.S. financial system.

Although the Fed stressed it will remain patient for now, some members would not rule out another increase in interest rates this year. They said the strong labor market would help contribute to a rebound in consumer spending and boost economic growth in the months ahead, though not as rapidly as last year.

"The participants said that they did not expect the recent weakness in spending to persist beyond the first quarter," the minutes said.

In other words, the Fed is still leaving itself wiggle room.

"Policy makers are happy that their about-turn in January helped trigger a clear improvement in financial conditions but some, at least, are about the danger of being boxed-in," said chief economist Ian Shepherdson or Pantheon Macroeconomics. 19659003] In another noteworthy part of the discussion, "several" Fed officials questioned the usefulness of an inverted yield curve in predicting recession The yield curve "inverts" when rates on short-term loans, say two years or less, exceed rates on longer -term borrowing of 10 years or more

Parts of the yield curve inverted earlier this year, but many economists say it's no guarantee of recession. 19659026]
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