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Federal Reserve cautious on future rate hikes

Fed raises key interest rate

Federal Reserve officials expressed growing concerns about the U.S. economy when they met last month, grappling with volatile stock markets, trade tensions and signs of slowing global growth. These threats made the future path of interest rate hikes "less clear," they said. 

According to minutes of the Fed meeting Dec. 18-19, officials believed that with inflation still muted the central bank "could afford to be patient" about future rate hikes. A "few" Fed officials argued against hiking rates at the meeting, the account shows, although a rate hike was eventually approved unanimously.

The minute, which the Fed released on Wednesday, show there was more turmoil behind the scenes than was evident from Chairman Jerome Powell's even-keeled statement on Dec. 19 when he announced the fourth rate hike this year. 

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While the Fed expounded on the "strong" economy, it trimmed its projection of possible rate hikes in 2019 from three down to two. But many private economists think the central bank may end up raising rates just once this year if the economy slows significantly.

The central bank's interest-rate hikes are "likely on pause for a while and will be highly influenced by the economic data and evolution of key risks, notably those affecting financial markets and global growth," Sal Guatieri, senior economist at BMO Economics, wrote in a note. "Fed officials believe we are much closer to the end than the beginning of the tightening cycle." 

The minutes note the contrast between the data on the U.S. economy, which show strong growth, and financial markets' fears of the future. That means Fed policy this year will "ultimately take its cue from the economic data, which is still holding up surprisingly well," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note.

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