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Getty Images US Federal Reserve Chairman Jerome Powell has taken a wait-and-see approach to the U.S. economy.
Senior leaders at the Federal Reserve were more optimistic about the economy in December as trade tensions with China eased, but they still had lingering worries and fretted that inflation would remain too low, according to minutes of the central bank’s last meeting.
The Fed’s policy-setting arm voted unanimously last month to leave a key U.S. interest rate unchanged after three straight reductions, deciding to see how the economy responded before taking further action.
Although many Fed officials saw risks to the economy as “tilted somewhat to the downside, some risks were seen to have eased over recent months,” the minutes said.
Senior central bankers pointed to a resumption in trade talks between the U.S. and China and indications that the global economy was starting to stabilize, among other things.
Central bankers maintained their belief that price levels from would eventually rise, but “participants generally expressed concern regarding inflation continuing to fall short of 2%,” the minutes said.
A weak world economy and “subdued global inflation” were viewed as potential obstacles to the Fed achieving its 2% goal. Inflation is running just below 1.5% annually based on the bank’s preferred PCE price gauge.
The Fed is reviewing strategies on how to nudge inflation higher, including the possibility of letting it run above its target for awhile in a form of price averaging, but the bank has not made a final decision.
Yet in a potentially significant move, the Fed said it would not reaffirm its current statement on “longer run goals and monetary strategy” at its next meeting later this month. The decision almost certainly suggests the central bank will adopt a new strategy later in 2020, probably around midyear.
The Fed is also considering new tools to stabilize the so-called repo market in the long run, including a standing repo facility or even the purchase of coupon-bearing Treasury securities. The bank said it expects further discussion on these ideas at future meetings.
if anything Fed officials have become more optimistic since their last meeting three weeks ago. Trade tensions with China continue to recede, hiring accelerated in the fall and the holiday season appears to have been a strong one.
“I think the fundamentals for the U.S. economy are good. The labor market is strong,” Chicago Fed President Charles Evans said Friday in an interview with CNBC. “So, I think we’re in a pretty good position there.”
Read: U.S. economy may be entering 2020 on firmer footing
Stocks and bond yields beat a hasty retreat in Friday trades, however, after the U.S. killed a top Iranian military leader. The Dow Jones Industrial Average DJIA, -0.79% and S&P 500 SPX, -0.63% both fell sharply and Treasury rates sank.
The Fed has already signaled it doesn’t plan to alter U.S. interest rates in 2020. And officials are only forecasting one rate increase in 2021.
