Federal Reserve policymakers expressed concern last month that raising interest rates too soon could pour cold water on the U.S. economic recovery, and fretted over the impact of dropping “patient” from the central bank’s interest rate guidance.
At the central bank’s last policy-setting meeting in January, Fed officials debated the impact that stubbornly low inflation measures were having on the central bank’s confidence in moving ahead with raising rates.
They also noted how China’s economic slowdown and tensions in the Middle East and Ukraine posed downside risks to the U.S. economic growth outlook, according to minutes from the Federal Open Market Committee’s Jan. 27-28 meeting.
Fed officials maintained that a decision on when to raise rates would remain dependent on economic data, though how early to move appeared to be cause for concern.
“Many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the committee’s objectives,” said the minutes, which were released on Wednesday.
The Fed repeated in January that it would be “patient” in deciding when to raise benchmark borrowing costs from zero and acknowledged a decline in certain inflation measures. The minutes show that many participants in the policy meeting feared that dropping “patient” — whenever the time comes — risks shifting market expectations of a rate hike to an “unduly narrow range of dates.”