The Federal Reserve is likely to leave interest rates unchanged this year given risks to the U.S. economy from a global slowdown and uncertainty over trade policies and financial conditions, according to the minutes from its March 19-20 policy meeting.
The U.S. central bank pivoted abruptly at that meeting to a much-less aggressive posture, and the minutes released on Wednesday showed policymakers agreed to be “patient” about making any moves on rates.
“A majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year,” according to the minutes.
U.S. central bankers also debated possible policy moves the Fed could make after it ended its balance sheet reduction program by September, with some advocating purchases of U.S. Treasury securities at that point.
Financial market reaction to the release of the March meeting minutes was largely muted. U.S. stocks were little changed and Treasury yields drifted up from the day’s low
Some policymakers said they might change their minds on whether the Fed’s next move should be to raise or lower rates.
“Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data,” according to the minutes.
While policymakers noted that the U.S. labor market appeared strong, some expressed concern about weakness and said a “deterioration” in the U.S. economy could be amplified by large debt burdens at American companies, according to the minutes.
They also agreed they were concerned about continued weakness in the housing market.
“Participants also noted significant uncertainties surrounding their economic outlooks, including those related to global economic and financial developments,” according to the minutes.
The Fed in March signaled it would not hike rates this year amid a slowing economy and announced the plan to end its balance sheet reduction program by September. The signal on rates came largely via a survey of policymaker expectations on the appropriate path of policy, which the Fed releases four times a year.
The minutes noted that the discussion last month included concerns by several policymakers that the Fed’s quarterly Survey of Economic Projections has at times been misinterpreted by the public. Other policymakers said the projections were useful and Fed Chairman Jerome Powell asked a committee of central bankers to research how to improve use of the projections in the Fed’s communications.
A significant portion of the policymakers’ discussion outlined in the minutes was devoted to how to wind down the runoff of the Fed’s massive balance sheet and how to manage it when that process is over.
Some policymakers suggested the Fed should discuss the costs and benefits of new tools for reducing demand for reserves parked at the U.S. central bank, according to the minutes.
The discussion also included comments by several policymakers that the Fed might need to stabilize the level of reserves soon after it finishes its balance sheet runoff. That would involve resuming the purchase of U.S. Treasury securities, according to the minutes.