Following the fourth rate increase of 2018, members of the Federal Open Market Committee said they could "afford to be patient" about future hikes, according to minutes released Wednesday from its Dec. 18-19 meeting.
At its meeting last month, the FOMC raised the federal funds rate by a quarter point — to a range of 2.25% to 2.5%. But members also reduced the number of projected rate hikes in 2019 to two from three. Now, they project, on average, the federal funds rate to rise to 2.9% by the end of 2019 and to 3.1% by the end of 2020.
There were a "few" members at the December meeting who favored keeping rates unchanged because recent inflation readings "afforded the committee some latitude to wait and see how the data would develop amid the recent rise in financial market volatility and increased uncertainty about the global economic growth outlook," the minutes said. However, in the end, each member voted to raise rates.
"With an increase in the target range at this meeting, the federal funds rate would be at or close to the lower end of the range of estimates of the longer-run neutral interest rate, and participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier," the minutes said.
Fed Chairman Jerome Powell voiced a similar sentiment last week at the American Economic Association's annual meeting in Atlanta when he said there is "no preset path for policy" and that the FOMC is "always prepared to shift the stance of policy and to shift it significantly if necessary in order to promote our statutory goals of maximum employment and stable prices."
Bob Miller, head of U.S. multisector fixed income, said in a statement Wednesday that the key question moving forward is "how relevant these minutes really are, given the subsequent market volatility" and Mr. Powell's statements last week in which he "suggested that it was clear that there was a tension between economic data and financial market concerns" while also saying policy is not on a preset path.
FOMC members cited strong job gains, low unemployment and a stabilized inflation rate near its 2% target as reasons it raised rates, the minutes showed.
The committee also modified a word in its post-meeting statement to say "the committee judges that some further gradual increases" instead of saying that it "expects some further gradual increases." According to the minutes, the committee felt the update better conveys its "data dependency" regarding its future policy stance.
"The tone is changing to more of a dovish sentiment," said David Norris, head of U.S. credit at TwentyFour Asset Management. "I think it would be helpful for them just to continue reiterating that they're data dependent, and I think the market is taking it as such. That's why we're seeing a nice bump."