The minutes elaborated on the dovish message delivered three weeks ago when the FOMC said it will be "patient," signaling it had put interest-rate hikes on hold and was prepared to be more flexible on shrinking the balance sheet. The shift occurred after the worst December for U.S. stocks since the Great Depression, trade tensions escalated between the U.S. and China, and President Donald Trump berated officials for tightening monetary policy too much.
Market Reaction
After the minutes were released, U.S. stocks held onto slight increases and the 10-year Treasury yield extended gains. Federal funds futures were little changed with just 3 basis points of cuts priced into the December 2019 meeting.
Shedding additional light on the central bank's pivot away from projecting gradual interest-rate hikes, the minutes said that "many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year."
While several said rate hikes might be necessary "only if inflation outcomes were higher than in their baseline outlook," several others said that if the economy evolved as expected, higher rates would be appropriate later this year, according to the minutes.
Chairman Jerome Powell underscored the message in his Jan. 30 press conference by saying the Fed would be patient in deciding when and how to adjust policy in the face of a mounting set of risks, including slowing growth in China and Europe, Brexit, trade negotiations and the effects of the five-week U.S. government shutdown. The FOMC unanimously decided to leave the benchmark interest rate unchanged in a range of 2.25 percent to 2.5 percent.
Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
(Photo: iStock) 
