Fed minutes reveal dovish approach to rate hikes this year

During their December meeting, Federal Reserve officials largely approved of a dovish approach to interest rate hikes in 2019, agreeing to a “limited amount” of tightening of monetary policy in the midst of uncertainties about global growth.

At the same meeting, policymakers at the U.S. central bank voted to raise the benchmark federal funds rate for the fourth and final time in 2018, but signaled a slower pace of gradual hikes this year, expecting to hit neutral by the end of 2019.

Although voting members unanimously agreed to raise interest rates, the minutes noted a few participants favored no change. It’s unclear who those people are.

Members generally agreed that despite some tightening financial conditions and a slight cool-down in global growth, overall growth would remain above trend and the labor market strong, anticipating “some further gradual increases in the target range.”

The language was softened slightly in the post-meeting minutes, with Fed members emphasizing the importance of the economic outlook, including risks to global growth and, on another hand, possible risks to financial stability from a “prolonged period of tight resource utilization.”

“Monetary policy was not on a preset course,” it said. “Neither the pace nor the ultimate endpoint of future rate increases was known. If incoming information prompted meaningful reassessments of the economic outlook and attendant risks, either to the upside or the downside, their policy outlook would change.”

Since the meeting, several Fed governors have advocated a wait-and-see approach -- if not an all-out pause -- to interest rate hikes, based on uncertainties surrounding the markets, which just experienced the worst rout since the Great Depression.

“We should not take any further action on interest rates until these issues are resolved, for better, for worse,” Federal Reserve Bank of Dallas President Robert Kaplan told Bloomberg this week. “So I would be an advocate of taking no action and -- for example -- in the first couple of quarters this year, if you asked me my base case, my base case would be take no action at all.”

Cleveland Federal Reserve President Loretta Mester, who was a voting member of the Federal Open Market Committee in 2018, but will not be in 2019, echoed that sentiment during an interview with CNBC on Friday.


“We’re trying to gear the economy,” she said. “We don’t want it to have to overheat, which ends up with bad outcomes for the public. We know when we went into recession, that wasn’t a good outcome for anyone...And yet, we don’t also want to put the brakes on the economy.”