Minutes of the Fed's January discussions, released Wednesday, showed that Fed officials also felt that further rate hikes might only be needed if inflation were to accelerate. Fed officials also appeared close to agreeing on a plan to stop reducing their enormous bond portfolio before year's end — a step intended to help ease upward pressure on borrowing rates.
The minutes showed that Fed officials believe a "patient approach" to rate hikes would give them more time to assess the economic impact of President Donald Trump's trade battles with China and other countries, as well as the severity of a developing slowdown in global growth.
In response to the global slowdown, several Fed officials trimmed their economic outlooks while acknowledging that downside risks had increased, the minutes showed. Analysts said the minutes indicated that the bar for restarting rate hikes seemed to be quite high.
"The upshot is we now expect the Fed to leave rates unchanged throughout this year," said Paul Ashworth, chief U.S. economist at Capital Economics. Ashworth said he believed the Fed's next rate move would be cuts next year as U.S. growth slows further.
The minutes covered the Fed's Jan. 29-30 meeting where the central bank left its key policy rate unchanged and signaled a major pivot away from steadily raising rates. Instead, the Fed's statement said it would be "patient" in determining when to hike rates again. The statement cited the global economy, which has been slowing, and financial developments including a plunge in stock prices at the end of last year, as reasons for the change.
The minutes said that participants believed "a patient posture would allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge and, in particular, could allow policymakers to reach a firmer judgment about the extent and persistence of the economic slowdown in Europe and China."
The Fed's decision in January triggered a big rally in stock prices after the announcement because it signaled a major change in tone from the December meeting when the Fed had raised rates for a fourth time in 2018 and signaled that it expected two more rate hikes in 2019.
Powell said at a news conference following the January meeting that to hike rates further, he would need to see rising inflation. The Fed's preferred inflation gauge is below the central bank's 2 percent target.
The minutes said, "Many participants suggested that it was not yet clear what adjustments to (the Fed's policy rate) may be appropriate later this this year; several of these participants argued that that rate increases might prove necessary only if inflation outcomes were higher" than forecast.
The Fed's string of rate hikes last year prompted heavy criticism from President Donald Trump. But since the Fed began signaling a pause in rate hikes, the president has held off on further attacks. He even invited Powell and Fed Vice Chairman Richard Clarida to a White House dinner earlier this month which Treasury Secretary Steven Mnuchin, who was also present, described as "quite productive."