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Federal Reserve Minutes Show Worry about International Risks to US Economy

Jan. 7, 2015
The policymakers saw "broad-based improvement" in the labor market since their Oct. 28-29 meeting, with solid gains in job growth, a small reduction in the unemployment rate and increased hiring.

The Federal Reserve worried about foreign risks to the U.S. economy but could raise interest rates despite weaker-than-desired inflation, according to the minutes of the last meeting published Wednesday.

"Many participants regarded the international situation as an important source of downside risks to domestic real activity and employment," said the minutes of the Dec. 16-17 meeting of the Federal Open Market Committee (FOMC).

The potential for weaker U.S. economic growth would rise "particularly if declines in oil prices and the persistence of weak economic growth abroad had a substantial negative effect on global financial markets," the minutes said, "or if foreign policy responses were insufficient."

The outlook for growth in the eurozone, Japan and China has dimmed and slumping oil prices are battering the economies of Russia, Venezuela and other oil-exporting countries.

The central bank's preferred inflation measure, the personal consumption expenditures price index, was up 1.2% in November from a year ago, while core PCE increased less than 0.1%.

"The Fed is determined to tighten, though several participants urged for more data-dependent criteria so that investors would get away from a conviction the hike will be in the middle of the year. The Fed may hike rates even if headline inflation runs well below target for a time," said Chris Low of FTN Financial.

According to the minutes, "most participants" agreed to adding language in the FOMC statement about being patient in deciding to raise interest rates, saying it indicated the process was unlikely to begin "for at least the next couple of meetings."

That suggested the first rate hike could come earlier than expected, perhaps as soon as April, after the January and March meetings, said Omer Esiner of Commonwealth Foreign Exchange.

Copyright Agence France-Presse, 2015

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