The Federal Reserve’s policy-setting committee is increasingly concerned about how it will communicate to global markets its decision to eventually raise interest rates, minutes from the central bank’s December meeting show.
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In an effort to further explain how economic and financial data will influence that decision, members of the Federal Open Markets Committee said they could “be patient” while sifting through that data as they determine the timing and trajectory of a rate hike.
Adding the phrase “be patient” to language that already said rates would remain low “for a considerable period” after the Fed’s bond buying program ended in October was interpreted last month by investors as more evidence the Fed is in no hurry to raise interest rates.
In addition, the December minutes show FOMC members agree that interest rates will rise “gradually” once the decision is made to make borrowing more expensive, probably in mid-2015.
Caution was necessary, the minutes note, because even as the U.S. economy heals, economies around the globe are struggling, namely in Europe, Russia and Asia.
Most Fed members agree “it will be appropriate to raise the target federal funds rate fairly gradually,” according to the minutes.
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Echoing language contained in Fed minutes throughout the second half of 2014, FOMC members said they saw the U.S. economy expanding at “moderate pace.”
Labor markets were showing positive signs “with solid job gains and lower unemployment rate,” according to the minutes. The November jobs report showed a much-better-than-anticipated 321,000 new jobs were created that month and that the 12-month average had jumped to more than 220,000.
The Fed members also agree that labor market slack caused by a surplus of part-time and temporary jobs which have helped keep wages low is “diminishing.” That could eventually help push wages higher and help lift inflation toward the Fed’s 2% target rate.
The minutes show Fed members believe low oil prices, which have pushed the price of a gallon of gas to its lowest level in five years, is a temporary situation that won’t impact their decision on a rate liftoff.
The FOMC members still believe inflation will rise to the 2% target sometime in mid-2015, mirroring the timing of a projected rate hike.
The Fed members stressed that adding the phrase “be patient” was consistent with the central bank’s message that rates will stay at their current near-zero range until the economic data indicates the economy can stand on its own.
Fed Chair Janet Yellen has said the Fed added the phrase to separate the timing of a rate hike from the end of quantitative easing, which was phased out in October.
Both phrases are intentionally ambiguous and seeming intended to reassure markets that the Fed won’t raise interest rates – and raise borrowing costs – until the economy is ready.