Fed raised rates even as inflation debate continued: minutes

Wed Jan 6, 2016 3:14pm EST
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By Jason Lange and Howard Schneider

WASHINGTON (Reuters) - Federal Reserve policymakers decided to raise interest rates last month after almost all of them gained confidence inflation was poised to rise, but some voiced worries inflation could get stuck at dangerously low levels.

"Nearly all participants were now reasonably confident inflation would move back to 2 percent over the medium term," the minutes of the Fed's Dec. 15-16 meeting released on Wednesday said.

But "some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics."

The minutes cast light on the fissures that remain in the U.S. central bank despite a unanimous decision from policymakers last month to raise rates by a quarter point from near zero, the first increase in a decade.

The debate over the outlook for inflation will be central to decisions on how quickly to raise rates over the next year.

The move to hike in December while promising a gradual path of future increases was a compromise between policymakers who had been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth.

Fed policymakers generally expect four quarter-point rate hikes in 2016, but the minutes made clear that some officials will be wary of further increases if higher inflation does not materialize, and all agreed that persistently low inflation was a worry.

"Because of their significant concern about still-low readings on actual inflation and the uncertainty and risks present in the inflation outlook, they agreed to indicate that the Committee would carefully monitor actual and expected progress toward its inflation goal," the Fed said in the document.   Continued...

Police officers stand with their dog outside the Federal Reserve patrol in front  of the building with their dog Brodie in Washington September 1,  2015.  REUTERS/Kevin Lamarque