Fed officials divided over timing of next rate hike, minutes show

Federal Reserve officials were divided over whether to further raise short-term interest rates at its next policy meeting in April as they saw appreciable risks to the U.S. economy from global developments, minutes of the Fed's latest monetary policy meeting showed Wednesday.

"Many participants expressed a view that the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook. Some noted that recent financial market turbulence provided an important reminder that the ability of central banks to offset the effects of adverse economic shocks might be limited," according to the minutes of the Fed's March 15-16 meeting released Wednesday.

The Fed raised its target range for the federal funds rate by 25 basis points to 0.25-0.5 percent in December, the first rate hike in nearly a decade, marking the end of an era of extraordinary easing monetary policy.

But the turmoil in financial markets and a slowdown in global economy since the start of the year have raised increasing concerns about the strength of the U.S. economy, forcing Fed policymakers to hold off on any further rate hikes since then.

The Fed's updated projections released last month showed that policymakers expected the federal funds rate to rise to around 0.9 percent at the end of 2016, implying two quarter-percentage-point rate increases this year, down from four estimated in December.

"They expressed a range of views about the likelihood that incoming information would make an adjustment (to the stance of monetary policy) appropriate at the time of their next meeting" scheduled on April 26-27, the minutes said, noting that a number of Fed officials saw the headwinds restraining U.S. economic growth likely to "subside only slowly."

"Several expressed the view that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate," the minute said.

But some other Fed officials indicated that they were inclined to raise rates at the next meeting "if the incoming economic data remained consistent with their expectations for moderate growth in output, further strengthening of the labor market, and inflation rising to 2 percent over the medium term.".

"Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy," Fed Chair Janet Yellen said last week, referring to the Federal Open Market Committee (FOMC), the Fed's monetary policy arm.

"This caution is especially warranted because, with the federal funds rates so low, the FOMC's ability to use conventional monetary policy to respond to economic disturbances is asymmetric," Yellen added, signaling that she would like to wait for more time to assess the U.S. economic outlook before raising interest rates again.

"This asymmetry made it prudent to wait for additional information regarding the underlying strength of economic activity and prospects for inflation before taking another step to reduce policy accommodation," the minutes said.

About 76 percent of the business and academic economists polled by the Wall Street Journal last month estimated that the Fed would wait until June to raise interest rates. Endit