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Fed’s FOMC minutes show concern over US economy
January 6, 2016, 10:30 pm

Although the FOMC voted unanimously to increase interest rates in December, there were cautionary statements made about the country's low inflation rate [Xinhua]

Although the FOMC voted unanimously to increase interest rates in December, there were cautionary statements made about the country’s low inflation rate [Xinhua]


According to the just published official minutes of the Federal Reserve’s Open Market Committee meeting on December 16, a number of leading bankers are concerned the positive health of the US economy may have been overstated.

The Fed announced last December that it would raise interest rates – the first such move in nearly a decade and for the first time since the sub-prime mortgage crisis of 2007 – by a quarter point, or 0.25 per cent.

Interest rates had ranged between zero and 0.25 per cent up to that point.

While a low unemployment rate (currently at five per cent) and GDP growth (2.1 per cent for 2015) are indicators taken into consideration by the FOMC, the concern remains over low inflation.

The inflation rate in November 2015 year on year stood at 0.5 per cent, well below the two per cent target, which is considered ideal by most Western economies.

“Consumer price inflation continued to run below the FOMC’s longer-run objective of 2 percent, restrained in part by declines in both energy prices and the prices of non-energy imported goods,” the FOMC minutes released on Wednesday said.

“Some survey-based measures of longer-run inflation expectations edged down, while market-based measures of inflation compensation were still low.”

Inflation is a strong measure of an economy’s health; a low inflation rate encourages hoarding of commodities and discourages productivity as industry waits for prices to go up again.

Two per cent is the ideal inflation rate that spurs growth.

The FOMC meeting minutes also revealed that “the staff projected that inflation would increase gradually over the next several years and reach the Committee’s longer-run objective of 2 percent by the end of 2018”.

Despite these cautionary statements, the decision to begin increasing interest rates was unanimous by the FOMC, but its members did state that there would be gradual increases to the interest rate over the next year.

Analysts expect another 0.75 per cent incremental increase in interest rates by the end of 2016.

The BRICS Post with inputs by Agencies