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Dollar falls after release of Fed minutes
The Federal Reserve meeting minutes were released on Wednesday – these were from the December meeting when the US central bank made its first rate hike since 2006.
While, nearly all participants were now reasonably confident inflation would move back to 2 percent over the medium term, some FOMC policymakers said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation.
The US dollar fell in reaction to the minutes.
Below are some extracts from the FOMC minutes:
On the threat from slower growth aboard
Participants generally saw the downside risks to U.S. economic activity from global economic and financial developments, although still material, as having diminished since late summer.
On the strength of the US services sector
A number of participants commented on the strength in the services sector in their Districts, citing, in particular, activity in high-tech, transportation, leisure and hospitality, and health-related businesses. Some reported that the stronger manufacturing industries in their Districts included aerospace, power generation equipment, and medical equipment, and that the domestic auto industry was still a bright spot.
However, manufacturing activity overall continued to be restrained by weakness in industries with significant international exposures, such as steel, agricultural and drilling equipment, and chemicals.
On the outlook for inflation
Nearly all participants were now reasonably confident that inflation would move back to 2 percent over the medium term. However, because of the recent further decline in crude oil prices, many participants judged that falling energy prices would depress headline inflation somewhat longer than previously anticipated.
Also, several observed that the additional appreciation of the dollar would continue to hold down the prices of imported goods. Although almost all still expected that the downward pressure on inflation from energy and commodity prices would be transitory.
On the decision to raise rates
Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to ¼ to ½ percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
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