Federal Reserve officials backed off of plans for further interest rate hikes this year because they feared the possibility that the economies of Europe and China could be in trouble, according to notes from the central bank’s January meeting released Wednesday. They also agreed to stop shrinking the Fed’s $4 trillion balance sheet later this year.
Chairman Jerome Powell and other Fed members decided not to raise rates in part to “allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge,” minutes from the meeting show.
The notes released Wednesday were from the Fed’s two-day meeting at the end of January, at which officials decided not to raise rates and said that they would be “patient” with further rate hikes — suggesting that they might not raise rates any more during this business cycle. That decision was widely regarded as a major reversal from Fed officials’ suggests in previous months that they were planning on tightening monetary policy throughout 2019.
The about-face followed harsh criticism from President Trump for the Fed’s past hikes in its interest rate target over 2017 and 2018. Powell, however, said that politics played no role in the decision.
According to the minutes released Wednesday suggested that the rationale for reversing course instead was that the global economy slowed in the past few months, and business and consumer sentiment fell. Additionally, Fed officials became increasingly nervous about government policy, especially Trump’s trade negotiations and the prospect of further shutdowns.
The minutes also said, though, that some Fed officials don’t think that further rate hikes are necessary unless inflation rises above their 2 percent target. Inflation has been running slightly below that mark.
Separately, “almost all” participants at the meeting agreed that it would be good to announce relatively soon that the Fed will stop shrinking its balance sheet this year. The Fed’s holdings of Treasury securities and government-backed mortgage-backed securities swelled in the wake of the recession thanks to rounds of bond purchases meant to stimulate the economy, but the Fed in recent months has been slowly allowing some of those securities to mature without reinvesting the proceeds.
Trump has faulted the Fed for allowing its holdings to shrink, arguing that doing so amounts to monetary policy tightening and has undercut his efforts to grow the economy and rework trade deals.
