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Fed Minutes Show Some Concern Low Rates Could Lead To Excessive Risk-Taking

Fed Minutes Show Some Concern Low Rates Could Lead To Excessive Risk-Taking

Members of the Federal Reserve generally agree that interest rates should remain unchanged for the foreseeable future unless there is a material shift in the economic outlook.

However, the minutes of the Fed’s December meeting showed a few participants raised concerns that keeping interest rates low over a long period might encourage excessive risk-taking.

The participants suggested that policies that keep interest rates persistently low could exacerbate imbalances in the financial sector.

Such policies could be inconsistent with sustaining maximum employment and could make the next recession more severe than otherwise, the Fed members warned.

Nonetheless, economic projections provided by the Fed after the meeting show a majority of participants expect interest rates to remain unchanged throughout 2020.

The meeting resulted in the Fed members voting to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent on the heels of three straight quarter-point reductions.

The Fed judged that the current stance of monetary policy is appropriate to support a sustained economic expansion, strong labor market conditions, and inflation near its symmetric 2 percent objective.

The central bank maintained its assessment of the economy, reiterating that recent data indicates the labor market remains strong and that economic activity has been rising at a moderate rate.

The Fed also once again noted that while household spending has been rising at a strong pace, business fixed investment and exports remain weak.

The accompanying statement noted the Fed will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path for rates.

The minutes revealed that members agreed retaining references to global developments and muted inflation pressures meant text referring to uncertainties about the economic outlook could be removed.

The vote to leave interest rates was unanimous, as Kansas City Fed President Esther George and Boston Fed President Eric Rosengren joined in after voting against the past three rate cuts.

The Fed is scheduled to hold its first monetary policy meeting of 2020 on January 28th and 29th, with rates widely expected to be kept unchanged.

The material has been provided by InstaForex Company – www.instaforex.com