Federal Reserve policymakers last month grappled with “significant uncertainties” and persistently low inflation as they scrapped forecasts for interest-rate hikes in 2019 even while voicing the need to maintain policy flexibility.
“Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments,’’ according to minutes of the March 19-20 Fed meeting, released Wednesday in Washington.
The minutes show U.S. central bankers reacting to a fourth-quarter slowdown that appeared to be extending into the first three months of the year. They also cited several uncertainties, ranging from Brexit deliberations, to risks of persistent softness in domestic spending and deeper-than-expected slowdowns in Europe and China.
The Fed’s median estimate last month showed no hikes for the remainder of 2019, erasing their forecast from December for two increases this year. Central bankers left the target policy rate unchanged in a range of 2.25 percent to 2.5 percent.
“A majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year,” the minutes said. Some officials saw higher rates as appropriate later this year if economic growth continued above its longer-run trend rate, according to the minutes.
Even with the slowdown and risks, the Fed’s outlook remained broadly positive, as “participants generally expected economic activity to continue to expand, labor markets to remain strong and inflation to remain near 2 percent,’’ the minutes said.
But policymakers continued to puzzle over the economy’s low inflation, suggesting it could be the result of too-low public expectations about increases over time or more-ample labor- market slack.
Price gains, according to the Fed’s preferred measure minus food and energy, decelerated to 1.8 percent in January from 2 percent in December. A Labor Department report earlier Wednesday showed a separate measure of core inflation unexpectedly slowed in March, potentially because a change in data collection may have pushed down apparel prices.