In the minutes of their January 26 – 27th Federal Open Market Committee (FOMC) meeting, Fed officials showed greater concern regarding the balance of risks to the medium-term economic outlook for inflation and economic growth, noting that uncertainty had increased due to recent developments in financial markets and emerging economies.
“Almost all participants cited a number of recent events as indicative of tighter financial conditions in the United States’ these events included declines in equity prices, a widening in credit spreads, a further rise in the exchange value of the dollar, and an increase in financial market volatility.”
Participants also expressed concern regarding the slowdown in China’s industrial sector and the possibility that structural and financial changes to their economy could cause a sharper decline in growth, and increase economic and financial stresses on other commodity producers and emerging market economies such as Canada and Mexico.
Committee members viewed incoming data regarding the labor market as encouraging. Inflation however, continued to run below the 2 percent objective. Participants pointed out that some market-based measures of long-term inflation compensation declined to historically low levels, increasing concern about whether inflation expectations could be moving lower.
Read the FOMC minutes.