WASHINGTON (BLOOMBERG) - Federal Reserve officials are starting to reassess their outlook for the US economy as global weakness and disappointing data on American consumer spending test their resolve to raise interest rates this year.
San Francisco Fed President John Williams last week said he will trim his US estimate because of slower growth abroad. Atlanta's Dennis Lockhart said Jan 12 that he advocates a "cautious" approach to rate increases and inflation readings "may be pivotal".
Both are voters on the US central bank's policy-setting Federal Open Market Committee in 2015 and repeated that rates could be raised in the middle of the year.
Weakness in Europe, Japan and China has dimmed the outlook for the world economy, with the International Monetary Fund and World Bank reducing their estimates for global growth.
Last month's decline in US retail sales, the biggest in almost a year, suggests that Americans may be cautious about spending a windfall from cheaper petrol even as the job market improves.
"You have some cracks appearing in the official line that lower oil prices are good for the US economy and that the US can grow even if the global economy is weakening," said Mr Thomas Costerg, an economist at Standard Chartered Bank in New York. "There are headwinds."
Fed officials will discuss the outlook when they meet next week, though they aren't scheduled to release their next set of economic projections until March.
Even small cuts to their forecasts are likely to reinforce the message that the FOMC can be "patient" as it plans to raise interest rates for the first time since 2006.
Chairman Janet Yellen indicated in her December press conference that rates are unlikely to be raised "for at least the next couple of meetings", or not before late April.
Federal funds futures markets now show only a 15 per cent chance the benchmark interest rate will be 0.5 per cent or higher in June, compared with about a 30 per cent probability at the start of the year.
Macroeconomic Advisers, the economic forecasting firm, on Wednesday (Jan 21) pushed its estimated date for the first rate increase back to September from June.
Fed officials still have plenty of reasons to stick to their mid-year estimate for a rate increase.
The unemployment rate stood at 5.6 per cent in December, just above the top end of the Fed's 5.2 per cent to 5.5 per cent estimated range for full employment. Private forecasters expect growth of 3.2 per cent this year, enough to pare down excess slack and provide a floor for prices.
Even so, Fed officials find themselves confronting a communications challenge as they head into their Jan 27-28 meeting because no press conference is scheduled and they are limited to a statement that in December ran to 734 words.
The Fed chair holds press conferences following four of the eight annual FOMC meetings, with Dr Yellen's next appearance scheduled for March 18.
"The argument is made that there should be a press conference after every meeting, and the case for this at present is as compelling as it has ever been," said Mr Jon Faust, director of the Center for Financial Economics at Johns Hopkins University in Baltimore and a former Yellen policy adviser.
"Things have gotten very interesting, and people will be hungry for explanations from the voice of the committee."