Federal Reserve policymakers worried last month that a global slowdown and financial market selloff could hurt the U.S. economy and considered changing the central bank’s planned interest rate hike path for 2016.
Although most of the policymakers still expected to raise rates this year and even discussed a hike at the Jan. 26-27 policy meeting, they were divided over how to interpret the financial market volatility, according to the minutes from the meeting released on Wednesday.
That suggested the Fed was backing away from the four rate hikes that were signaled for this year in December, when it hiked rates for the first time in nearly a decade.
The policymakers discussed “altering their earlier views of the appropriate path for the target range for the federal funds rate,” but most judged it “premature” to make big changes to their outlook, according to the minutes.
They added that they would closely monitor global economic developments as well as oil and stock prices.
“A number of participants were concerned about the potential drag on the U.S. economy from the broader effects of a greater-than-expected slowdown in China and other (emerging market economies),” according to the minutes.
Wall Street’s skepticism that the Fed would raise rates at all this year increased after the release of the minutes.
Prices for fed funds futures implied investors saw a roughly 30 percent chance of a hike in December and less than that at prior meetings, according to CME Group. Bets on a December hike were about 40 percent before the minutes were released.
A number of Fed policymakers said the recent moves in financial markets “were difficult to reconcile” with signs of underlying U.S. economic strength. But many of them saw growing risks to the economy and some said the financial market stress may be “roughly equivalent” to further monetary policy tightening, which would reduce the need for rate increases.
After a lengthy discussion of global economic risks, they agreed that economic uncertainty had increased and worried about the impact of persistent turmoil in financial markets.
“If the recent tightening of global financial conditions was sustained, it could be a factor amplifying downside risks” to the economy, according to the minutes.