The Federal Reserve signaled its willingness to keep interest rates low for longer, given risks to the U.S. economy ranging from a stronger dollar to tepid wages and a sluggish housing market.
Many officials "indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward" keeping rates near zero "for a longer time," according to a record of their Jan. 27-28 gathering released Wednesday in Washington.
Investors are now looking to congressional testimony next week by Fed Chair Janet Yellen for further clues to the timing of a rate increase after some Fed officials in recent weeks indicated a midyear move. The cautious tone of the minutes contrasted with a report a week after the meeting showing that payrolls rose more than forecast in January, capping the strongest three months of jobs growth in 17 years.
"The minutes definitely leaned dovish," said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. "A June liftoff was dinged today to some extent, though it doesn't mean it's off the table."
Officials also expressed concern that removing their vow to be "patient" on raising rates would lock them into a timetable for tightening, the minutes showed.
The dollar weakened and Treasuries advanced as investors pared bets the central bank will raise its benchmark interest rate as early as June.
Yields Drop
The Bloomberg Dollar Spot Index, a gauge of the currency's performance against 10 major peers, declined 0.05 percent as of 4:00 pm in New York compared to the previous day's close, after rising as much as 0.4 percent. Two-year Treasury yields sank six basis points, or 0.06 percentage point, to 0.60 percent.
The FOMC last month repeated its promise to be patient in considering the first rate increase since 2006, even as it described the labor market as "strong."
The panel, while considering risks to the outlook to be "nearly balanced," pointed to a strengthening dollar, international flash points from Greece to Ukraine, and slow wage growth as weakening the case for the first rate rise since 2006.
The minutes reflected an intense debate over the causes and consequences of an inflation rate that has lingered below the Fed's 2 percent target for 32 months.
"A number" of participants said that with stable inflation expectations, "the fall in energy prices should not leave an enduring imprint on aggregate inflation."
Narrow Range
The minutes said "it was pointed out" that the "recent intensification of downward pressure on inflation" was concentrated "in a narrow range of items in households' consumption basket."
Still, "several participants" saw "the continuing weakness of core inflation measures as a concern," with a few suggesting that weakness in wage growth could delay a return to the 2 percent target.
Members also discussed their communication strategy at length.
"Many participants regarded dropping the 'patient' language in the statement, whenever that might occur, as risking a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates," the minutes said. "Some expressed the concern that financial markets might overreact."
Most officials expect to raise rates this year and are weighing encouraging news on growth and employment against too- low inflation to judge the correct moment for liftoff. Divergent Views
While the panel's Jan. 28 statement received unanimous backing from voting members, the minutes showed diverging views over when the first increase may be appropriate.
"Some observed that, even with these risks taken into consideration, the federal funds rate may have already been kept at its lower bound for a sufficient length of time, and that it might be appropriate to begin policy firming in the near term," the minutes said.
