Washington - A global slowdown and a stronger dollar posed potential risks to the outlook for the US economy, Federal Reserve policymakers said at their last meeting.
A number of participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated”, according to minutes of the September 16-17 Federal Open Market Committee (FOMC) meeting released yesterday in Washington.
Stocks rose and the dollar was lower as investors speculated that caution over the economic outlook would lead the Fed to keep interest rates near zero for longer.
“This is dovish with capital letters from beginning to end,” Ward McCarthy, the chief financial economist at primary dealer Jefferies Group in New York, said.
Officials cautioned that spillover from Europe’s cooling economy and low inflation could boost the dollar further – curbing US exports, and restrain price gains that have lagged behind the Fed’s 2 percent goal.
“Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the US external sector,” the minutes said.
The International Monetary Fund (IMF) on Tuesday cut its outlook for global growth next year to 3.8 percent from a July forecast of 4 percent.
Other indicators, such as data on the duration of unemployment and the number of people working part time because they can’t find full-time work, still suggest slack remains in the jobs market.
“The labour market has yet to fully recover,” Fed chairwoman Janet Yellen said at a press conference after the FOMC meeting. “There are still too many people who want jobs but can’t find them.”
She added that inflation remained below the Fed’s goal.
Regional Fed presidents including Atlanta’s Dennis Lockhart, New York’s William C Dudley and Chicago’s Charles Evans have all said in the past month that they are watching the dollar as officials debate the timing of the first interest rate increase since 2006.
The FOMC last month retained a pledge to keep interest rates near zero for a “considerable time” after it concludes an asset purchase programme that’ was due to end after its meeting yesterday.
“Some participants saw the current forward guidance as appropriate in light of risk-management considerations, which suggested that it would be prudent to err on the side of patience while awaiting further evidence of sustained progress toward the committee’s goals,” minutes of the gathering show.
“Not only are they not ready to raise rates, they don’t even want people to think they’re ready to raise rates, so it’s not even on the radar screen,” McCarthy said. – Bloomberg