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Fed minutes: Hawks worry that delay in rate hike could cause recession

http://www.cnbc.com/2016/10/12/fed-minutes-fed-hawks-worry-that-delay-in-rate-hike-could-cause-recession.html




Federal Reserve officials who favor hiking interest rates worry that waiting too long could send the country into recession.

At an unusually divisive Federal Open Market Committee meeting in September, hawkish members said history holds a worrisome lesson for a central bank that has kept a historically accommodative monetary policy in place for the past eight years.

"A few participants referred to historical episodes when the unemployment rate appeared to have fallen well below its estimated longer-run normal level. They observed that monetary tightening in those episodes typically had been followed by recession and a large increase in the unemployment rate," said a summary of the meeting released Wednesday.

The worry is that if the Fed waits too long, it could be forced into having to raise rates aggressively to slow the economy.

For a look at the full minutes of the FOMC meeting, click here.

Following the release of the minutes on Wednesday afternoon, U.S.-traded shares remained higher, with the S&P 500 up about 0.3 percent.

Ultimately, the FOMC decided not to hike. The dovish side argued that the economy is still growing slowly — gross domestic product for the first half of the year was around 1 percent — and that inflation remains muted, meaning that the chances for having to change course abruptly is low.

Three members, however, dissented, looking for the Fed to approve a quarter-point hike that would have been only the second increase in more than 10 years. The "no" votes came from Esther George, Loretta Mester and Eric Rosengren.

With unemployment at 5 percent and inflation making slow progress toward the Fed's 2-percent target, debate has intensified over when the FOMC should start normalizing policy. The Fed took its key funds rate to near-zero in late-2008 during the financial crisis. Along with low rates, the Fed also expanded its balance sheet by some $3.7 trillion in three rounds of a monthly bond-buying program known as quantitative easing.