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 The minutes from the Sept. 16-17 meeting released on Thursday
pointed to a deeply cautious Fed even before subsequent economic
data showed a sharp slowdown in hiring by U.S. employers.
"Most" policymakers, according to the minutes, thought the Fed's
first rate hike in a decade should still come this year and that
financial market turmoil had not "materially altered" the outlook
for the U.S. economy.
At the same time, U.S. central bankers appeared unsettled and
discussed at length the possibility that the China-led slowdown
could weigh on America.
"The committee decided that it was prudent to wait for additional
information," the Fed said in the minutes, referring to its
policy-setting Federal Open Market Committee.
The Fed surprised much of Wall Street by keeping interest rates
unchanged at the September meeting, and many analysts expected the
minutes to show the decision was a close call.
However, while some central bankers at the September meeting said
the U.S. labor market was at full strength and Richmond Fed
President Jeffrey Lacker was ready to hike right then and there,
worries about a global economic chill clearly extended throughout
the central bank.
In discussing the economy's health, "many acknowledged that recent
global economic and financial developments may have increased the
downside risks to economic activity somewhat," the minutes said.
"It was pretty clear cut that they were in favor of holding off
raising rates," said Gus Faucher, an economist at PNC Financial
Services in Pittsburg.
Still, the minutes showed a committee seemingly convinced it was
time to move as soon as it was sure the economy was not about to
slip off course.
Only a "couple" of policymakers felt the economy is at risk of
seeing inflation expectations start drifting lower, an event that
might precede a slide into deflation.
"They see everything in pretty good condition, but they figured no
harm in waiting," said Brad McMillan, chief investment officer for
Commonwealth Financial in Waltham, Massachusetts.
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Even last month's slowdown in job creation should be viewed in the
context of an economy that is at or near full employment, San
Francisco Federal Reserve Bank president John Williams said on
Thursday, holding to a position he has laid out in recent days.
U.S. employers slammed the brakes on hiring in August and September,
hardening views among investors that the first rate hike won't come
until March.
But Williams cited the economy's low, 5.1 percent rate of
unemployment and evidence of fast-rising real estate prices in his
West Coast district as signs it may be risky to wait much longer to
raise rates.
"Given the progress we've made and continue to make on our goals, I
view the next appropriate step as gradually raising interest rates,
most likely starting sometime later this year," Williams said.
Yields on U.S. government debt rose to a one-week high following the
publication of the minutes, while U.S. stocks added to gains.
(Reporting by Jason Lange and Howard Schneider; Additional reporting
by Ann Saphir in Spokane, Washington and Sinead Carew and Richard
Leong in New York; Editing by Andrea Ricci)
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