Federal Reserve policy makers last month worried that slowing global growth and a stronger dollar posed risks to the U.S. economy as they decided to maintain a pledge to keep interest rates low for a “considerable time.”
A number of officials said the U.S. expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released Wednesday in Washington.
The minutes highlight growing concern among policy makers who say further gains in the dollar could hurt exports and damp inflation, which has undershot the Fed’s goal for more than two years. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, is up almost 6 percent since the beginning of July.
Stocks rose, sending the Standard & Poor’s 500 Index up the most this year, and the dollar weakened as investors speculated that caution over the economic outlook would lead the Fed to keep interest rates near zero for longer.
“They’re still in no hurry to start tightening,” said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore who formerly worked at the Fed’s division of monetary affairs. “Inflation is just too low.”
Spurring global growth will be on the agenda as finance ministers and central bankers gather in Washington this week for the annual meetings of the World Bank and International Monetary Fund. The IMF yesterday cut its global growth forecast for 2015 and warned about the risks of rising geopolitical tensions.
At last month’s FOMC meeting, “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 U.S. external sector,” according to the minutes.
A stronger dollar hurts U.S. exporters by making their goods more expensive in overseas markets. It also makes foreign goods cheaper in the U.S., potentially widening the trade deficit and keeping a lid on inflation.
The S&P 500 (SPX) rose 1.8 percent to 1,968.89 at the 4 p.m. close of trading in New York. The Bloomberg Dollar Spot Index was down 0.5 percent.
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 they are watching the dollar as officials debate the timing of the first interest-rate increase since 2006.