Fed Signaled Patience as Risks Calmed, but Low Inflation Remains a Concern

on Jan4
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SAN DIEGO — In 2020, the Federal Reserve is hoping to give patience another try.

The Fed had an active 2019, as officials shifted away from a steady set of interest rate increases to pause before cutting rates three times in the face of trade tensions and global weakness. But at their final meeting last year, Fed officials signaled they plan to keep interest rates unchanged, at least for now.

Fed officials saw their current rate setting “as likely to remain appropriate for a time,” so long as incoming economic information “remained broadly consistent” with the Fed’s outlook for continued solid growth, according to minutes from the central bank’s Dec. 10-11 meeting, released Friday.

Policymakers, including Jerome H. Powell, the Fed chair, made clear last month that they were comfortable leaving interest rates unchanged. Meeting notes underline that the pause could be an extended one. Officials are waiting to see how last year’s cuts, along with a possible easing of trade tensions, will affect the American economy.

Fed meeting participants “expected sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the minutes show. “This outlook reflected, at least in part, the support provided by the current stance of monetary policy.”

The Fed had lifted interest rates nine times between 2015 and late 2018 before cutting them three times last year between July and October. Rates now stand between 1.5 percent and 1.75 percent, much lower than they have historically been during economic expansions.

Yet officials showed no inclination to move rates in either direction as risks lingered on the economic horizon, especially as manufacturing weakens and trade-related threats remain.

“While many saw the risks as tilted somewhat to the downside, some risks were seen to have eased over recent months,” the minutes said. “In particular, there were some tentative signs that trade tensions with China were easing, and the probability of a no-deal Brexit was judged to have lessened further.”

At the same time, “new uncertainties had emerged regarding trade policy with Argentina, Brazil, and France, and political tensions in Hong Kong persisted.”

Data released Friday showed that manufacturing continued to contract in December, even as some trade spats appeared to cool.

If the trade news going forward remains positive, “we’ve got a chance to see some stabilization,” Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, said in an interview Friday in San Diego after the numbers were released.

“The moves we made, in my mind, having moved three times, were intended to address this weakness,” he said. “I would have to see some material deterioration in the outlook to want to do something more.”

And inflation, which has consistently fallen shy of the Fed’s 2 percent target despite very low unemployment and a record-long economic expansion, is a major concern at the Fed, the minutes showed.

“Participants generally expressed concerns regarding inflation continuing to fall short of 2 percent,” the minutes said, and “various participants were concerned that indicators were suggesting that the level of longer-term inflation expectations was too low.”

Against that backdrop, “maintaining the current stance of policy for a time could be helpful for cushioning the economy” from global developments and helping lift inflation back up, the minutes said.

Mr. Powell, who leads the Fed’s 17 policymakers, has said that he personally would want to see a sustained increase in inflation before considering raising interest rates, and a “material” miss to the Fed’s economic outlook before cutting them.

The Fed’s next meeting is Jan. 28-29 in Washington.

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