Federal Reserve officials decided in late January to pause their steady campaign to raise interest rates as the global economic outlook became less secure and the financial markets failed to appreciate the Fed's willingness to shift if the economy weakened, according to the minutes of that meeting released on Wednesday
The Fed officials concluded that a pause posed "few risks" for a strong economy in which prices continued to rise at a subdued rate, the minutes show. The Fed did not see any immediate threats to America's economic expansion, but officials indicated they were worried enough about potential risks ̵
Whether the Fed will raise rates at all in 2019 remains unclear. The minutes show and divergence among Fed officials, with "several" saying they would have been willing to raise rates again later this year "if the economy evolved as they expected." Others were less anxious to resume the increases, especially if inflation remained below the Fed's 2 percent target.
James Bullard, the president of the Federal Reserve Bank of St. Louis, suggested to reporters this month that the Fed had gone too far with rate increases last year. Other officials have said in recent days they are expecting a rate increase to resume, and the President of the Federal Reserve Bank of Cleveland, Loretta J. Mester, expressed in a speech this week
Markets found little new information in the minutes. The S & P 500, which had been negative earlier in the day, rose slightly. Treasury bond yields barely budged.
The January meeting was a departure from the Fed from what had been a slow and steady move towards higher rates and less stimulating monetary policy amid a strengthening economy. After five consecutive quarters of raising rates, Fed officials left them unchanged in January as expected. But they surprised the market in the policy statement released after the meeting, which dropped the previous language that said "some further gradual increases" in interest rates would be warranted in the coming months
That shift seems to have been, in part, and corrective notes to financial markets, which officials believed had turned volatile in December on the belief that Fed officials were not sufficiently worried about economic uncertainty at home and abroad – or willing to adopt more stimulating policy measures if those uncertainties turned into economic draggs  The Fed's communication after its December meeting, when officials raised rates by a quarter of a percentage point, "were reportedly perceived by market participants as not fully appreciating the tightening of financial conditions and related downside risks to US economic outlook that had emerged since the fall, "the minutes said.
Officials worried in particular that investors did not have a clear picture of how the Fed planned to deal with the slimming of the bond portfolio it has amassed in wake of the financial crisis. In addition to lowering the interest rates to close to zero, the Fed has tried to push the economy by buying large amounts of mortgage bonds and treasury securities, as a way to encourage investors to buy more riskier assets like stocks
The Fed has slowly been This is the reason that the $ 4 trillion portfolio would allow up to $ 50 billion in bonds to mature each month, but officials appeared to agree in January that the balance sheet should end in 2010.
Officials agreed that "it would be desirable to announce before too long and plan to stop reducing the Federal Reserve's assets holdings later this year, "and said the announcement" would provide more certainty about the process of completing the normalization of the size of the Federal Reserve's balance sheet. "
The minutes also highlighted just how hard it is for the Fed, which does not traffic in plain language, to always effectively communicate its plans. At the January meeting, Fed officials noted that investors were perceiving the central bank to be "insufficiently flexible" both in its rate-increasing campaign and in its balance sheet.
Fed officials tried to change those perceptions after both December and January meetings . The Fed chairman, Jerome H. Powell, said in a news conference on Jan. 30 that officials have concluded that recent economic developments – including slowing global growth, turmoil on financial markets and uncertainty over trade negotiations – have pushed the central bank to "a patient, wait-and-see approach to future policy changes."
"We are now facing a somewhat contradictory picture of generally strong US macroeconomic performance, alongside growing evidence of crosscurrents, "Mr. Powell said. "At such times, common sense risk management suggests patiently waiting for greater clarity."
Curt Long, the chief economist at the National Association of Federally-Secured Credit Unions, said the minutes revealing the shift to a more "patient" stance was "It's obvious the Fed was rattled by the markets and caved," he wrote on Wednesday.
Greg McBride, the chief financial analyst for Bankrate.com, was more blunt: The Fed officials saw little downside to the shift. They show officials have pointed to a variety of considerations that supported a patient's approach to monetary policy, including the need for additional economic data, which would help policymakers better measure business and consumer sentiment
. allowing more time to determine the effect of President Trump's trade war with China and other countries, and the economic damage caused by the prolonged government shutdown, which had not been resolved at the time of the January meeting
. also shed light on the effects of the recent partial federal government shutdown on US economic and budgetary outcomes in the aftermath of the shutdown, including the possible implications for the path of fiscal policy, "the minutes said.
The pauza had its desired effect with investors, as markets celebrated that news with a rally that has since continued.
Other critics of the Fed's interest rate campaign also seem to have been pleased. Mr. Trump – who has repeatedly criticized the Fed for raising interest rates – dined with Mr. Powell shortly after the meeting. Many liberal economists also cheered the move to slow rate increases, saying it would help workers by continuing to buoy the labor market and potentially raise wages