Increased uncertainty about global economic and financial developments was among the key concerns weighed by the Federal Reserve in January, according to the minutes of the central bank’s last meeting released on Wednesday.
Fed officials discussed plunging oil prices and slowing growth in China among other potential threats during the 26-27 January meeting, according to the minutes.
Officials were particularly worried about what the slowdown in China would mean for the global financial markets.
“While the exposure of the United States to the Chinese economy through direct trade ties was limited, a number of 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 emerging market economies,” the minutes said.
Minutes of their discussions show Fed officials acknowledging that the developments made it difficult to forecast growth and inflation prospects. As a result, they decided that the prudent approach was to defer a further hike in interest rates.
The Fed kept its key interest rate in a range of 0.25% to 0.5% in January after hiking it by a quarter-point in December. The December hike was the first time in almost a decade that the Fed has raised interest rates. The last interest rate hike before that was in June 2006.
While Fed officials continued to express confidence in the strengthening labor market, they were less bullish on other parts of the economy such as manufacturing. Figures released in January showed the US economy barely grew in the final three months of 2015, rising at an anaemic 0.7% annual rate.
According to the minutes, the data on “spending and production had been disappointing”. The Fed officials also noted, however, that lower energy costs could have a potential positive effects on US economic activity.
Two week after the January meeting, when Yellen testified in Congress, she said that low oil prices paired with steady job creation and faster wage growth could lead to an increase in consumer spending.
Related: Janet Yellen hints further rate rises on hold amid plunging markets
“Against this backdrop, the committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen,” she said.
The minutes also revealed that despite increased uncertainty, the Federal Reserve is still considering gradual increases – if at a slower pace.
“While participants continued to expect that gradual adjustments in the stance of monetary policy would be appropriate, they emphasized 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.
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