US Federal Reserve to weigh financial markets in rate decisions: minutes

: A man walks past the U.S. Federal Reserve in Washington.
: A man walks past the U.S. Federal Reserve in Washington.PHOTO: REUTERS

WASHINGTON (AFP) - Financial markets turmoil has clouded the US economic outlook and will be a key factor in charting interest rate increases, the minutes of the Federal Reserve's January meeting showed Wednesday.

Participants at the January 26-27 meeting of the Federal Open Market Committee "emphasised that the timing and pace of adjustments will depend on future economic and financial market developments and their implications for the medium-term economic outlook", the minutes said.

The FOMC policymakers noted "tighter" financial conditions in the United States, including a recent rise in market volatility and the stronger dollar.

After raising the benchmark federal funds rate by a quarter point in December, after keeping it pegged near zero for seven years, the FOMC left it unchanged at the January meeting, noting a slowdown in the US economy in the fourth quarter and the market turbulence.

Participants discussed at length the market volatility that had pushed share prices sharply lower and sent the dollar higher, according to the minutes.

Some expressed the view that "the effects of these financial developments, if they were to persist, may be roughly equivalent to those from further firming in monetary policy".

Officials also voiced concern that recent structural changes and financial imbalances in China "might lead to a sharper deceleration in economic growth in that country than was generally anticipated".

"Such a downshift, if it occurred, could increase the economic and financial stresses on other EMEs (emerging-market economies) and on commodity producers, including Canada and Mexico," among the top US trade partners.

"Moreover, global financial markets could continue to be affected by uncertainty about China's exchange rate regime."

Some participants "were concerned about the potential drag on the US economy from the broader effects of a greater-than-expected slowdown in China and other EMEs".