Fed minutes: Some saw December rate hike as ‘close call’

“Although nearly all still expected that the downward pressure on inflation from energy and commodity prices would be transitory, many viewed the persistent weakness in those prices as adding uncertainty or posing important downside risks to the inflation outlook”, the minutes said.

Levin will be looking for a discussion of a plan B in the Fed minutes – a plan in case the economy stalls. Low inflation can hinder economic growth and a rate hike would be expected to push prices down because it costs more to borrow.

Economic conditions will likely justify “only gradual increases” in the future, the minutes showed.

Oil prices may not fall much more, but as long as they’re stable, that should allow USA inflation to rise towards the Fed’s 2% goal, he said.

The Fed boosted the rate by a quarter point to a new range of 0.25 percent to 0.5 percent in December. “We think that they’re too low”.

That’s why even as the Fed moved to raise short-term interest rates at its last meeting-a move that, all else being equal, should slow price increases-committee members also wanted to tell the markets that it was anxious about missing its inflation goal.

Fischer said concerns about a slowdown in China’s economy are perhaps more significant. A cautious approach also minimizes the risks that the Fed will have to respond to a negative shock to the economy while its ability to do so is limited by a benchmark rate that is still near zero, the meeting summary says.

For each of the three key economic metrics the Fed watches-inflation, unemployment and growth-Fed staff economists saw risks of economic underperformance. Three-year yields, which are among those considered most vulnerable to Fed rate hikes, hit a more than three-week low of 1.253 percent. Construction and trade data released this week have been soft.

Ultimately, members of the policymaking Federal Open Market Committee chose to enact the long-awaited rate hike because they believed the recovery had improved enough in recent months and that the Fed needed to act because it takes time for monetary policy decisions to filter through the economy, according to the minutes.

That increase was not a surprise, but analysts are focused on how fast further increases will come.

Minutes of the Federal Reserve’s historic decision to lift interest rates revealed an undercurrent of doubt by central bankers despite a unanimous vote.

The next big test for the central bank is Friday, when the Labor Department releases its estimate of job growth and unemployment for December.

“Those numbers are in the ballpark”, Fischer said, but acknowledged the markets could be correct in projecting fewer hikes in 2016, given global uncertainty over North Korea, the Mideast and China.

Loretta Mester, the Cleveland Fed president, speaking in San Francisco, said the Fed’s internal projections, which show four increases this year, “give a good sense” of where officials expect interest rates to go in the months ahead. The Fed meets again on January 28-29.