Economy Watch: Fed Minutes Reflect Central Bank Caution (Or Timidity)

The Federal Reserve released the Minutes of the Federal Open Market Committee, March 15-16, on Thursday, and while they said that the U.S. economy has been resilient to recent global economic and financial developments, members of the committee “saw foreign economic growth as likely to run at a somewhat slower pace than previously expected, a development that probably would further restrain growth in U.S. exports and tend to damp overall aggregate demand.”

Thus “several participants” made the argument that March wasn’t the time to raise interest rates or do anything else to change accommodative policy, “because they because they saw the risks to the U.S. economy stemming from developments abroad as tilted to the downside.” The risk is there, in other words, that an ailing Chinese economy could bung things up for everyone else.

So most of the committee voted to keep the Federal Funds rate the same, which only slightly above nothing. That’s arguably welcome news for borrowers looking to put together commercial real estate deals, but on the other hand, the longer the low-interest rate environment persists, the harder it will be for the industry when it ends.

“A couple of participants,” according to the minutes, believe the target range should be raised to 1/2 to 3/4 percent, “citing evidence that the economy was continuing to expand at a moderate rate despite developments abroad and earlier volatility in financial conditions, continued improvement in labor market conditions, the firming of inflation over recent months, and the apparent leveling-off of oil prices. In their judgment, increasing the target range for the federal funds rate too gradually in the near term risked having to raise it quickly later, which could cause economic and financial strains at that time.”