The Federal Reserve’s decision to raise interest rates last month was a “close call” for some policymakers who worried about too-low inflation and received assurances that their colleagues would closely monitor its progress.
“Some members emphasized the importance of confirming that inflation would rise as projected and of maintaining the credibility of the committee’s inflation objective,” said minutes of the Federal Open Market Committee’s Dec. 15-16 meeting, released Wednesday in Washington.
The minutes also indicated that some members believed “the risks attending their inflation forecasts remained considerable” even as “the committee was now reasonably confident in its expectation that inflation would rise, over the medium term, to its 2 percent objective.”
The 10 voting members of the committee decided unanimously three weeks ago to raise the benchmark federal funds rate by a quarter percentage point to a range of 0.25% to 0.5%. The move marked the end of an era of near-zero rates dating back to December 2008.
The minutes showed “almost all” FOMC participants were “now satisfied the committee’s criteria for beginning the policy normalization process” had been met.
Stocks maintained declines after the minutes showed there was unanimity among policy makers to increase interest rates. The Standard & Poor’s 500 Index dropped 1.3% to 1,991.15 at 2:39 p.m. in New York.
While unemployment has declined significantly in recent years, inflation has languished below the Fed’s 2% target for more than three years, driven down by the plunge in oil’s price and a strengthening dollar. Even after stripping out volatile food and energy components, prices rose just 1.3% in the 12 months through November, according to the Fed’s preferred measure for core inflation.
Fed officials noted several times that monetary policy would ultimately depend on how the economy fared over time. “Members stressed the potential need to accelerate or slow the pace of normalization as the economic outlook evolved,” the minutes said.
The discussion also addressed inflation expectations, which had declined slightly in recent months.