Fed members consider December rate hike ‘close call’

Minutes of US Federal Reserve’s historic December meeting show Fed’s 25 basis points rate hike after almost ten years was 'close call'

Photo by: Reuters
Photo by: Reuters

US Federal Reserve Chairman Janet Yellen departs at the end of a news conference to announce raised interest rates in Washington, December 16, 2015

Federal Reserve policymakers decided to raise interest rates last month after almost all of them gained confidence inflation was poised to rise, but some voiced worries inflation could get stuck at dangerously low levels.

"Nearly all participants were now reasonably confident inflation would move back to 2 percent over the medium term," the minutes of the Fed's December 15-16 meeting released on Wednesday said.

But "some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics."

The minutes cast light on the fissures that remain in the US central bank despite a unanimous decision from policymakers last month to raise rates by a quarter point from near zero, the first increase in a decade.

The debate over the outlook for inflation will be central to decisions on how quickly to raise rates over the next year.

The move to hike in December while promising a gradual path of future increases was a compromise between policymakers who had been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth.

Fed policymakers generally expect four quarter-point rate hikes in 2016, but the minutes made clear that some officials will be wary of further increases if higher inflation does not materialize.

"Members expressed their intention to carefully monitor actual and expected progress toward the committee's inflation goal," the Fed said in the document.

The minutes also detailed the virtues policymakers see in raising rates at a gradual pace.

Policymakers said a gradual path of hikes would keep policy stimulus in place for longer, while giving them more time to confirm inflation was on track to meet the Fed's 2 percent target, according to the minutes. Inflation has been below the Fed's target for most of the last three years.