Federal Reserve officials were not overly worried about a weakening global economy late last month, with many officials expecting “quite limited” effect on the U.S., according to minutes of the central bank’s most recent policymaking meeting.
The meeting took place before Japan’s unexpected announcement this week that it had fallen into recession.
But members of the Federal Open Market Committee, which sets U.S. monetary policy, already were watching the troubles in Japan and several other major economies, according to the minutes released Wednesday.
And policymakers downplayed the potential effects on the U.S., saying that the role of foreign trade in the economy is “relatively small.”
The concerns about slower growth abroad did not prevent Fed officials from voting last month to end their controversial bond-buying stimulus program as they determined the economy was expanding at a “moderate pace.”
The U.S. economy has been outpacing most others around the world and expanded at a solid 3.5 percent annual rate in the third quarter of this year.
At their Oct. 28-29 meeting, Fed officials discussed “a somewhat weaker economic outlook and increased downside risks in Europe, China and Japan,” according to the minutes, which were released with a three-week lag.
Some policymakers noted that a further deterioration of foreign economic or financial conditions could cause the U.S. economy to grow slower than forecast over the medium term.
“However, many participants saw the effects of recent developments on the domestic economy to be quite limited,” the minutes said.
Fed policymakers decided last month to continue to keep the central bank’s benchmark short-term interest rate at near zero percent, where it has been since late 2008, to continue trying to stimulate economic growth.
In its policy statement released on Oct. 29, the committee said it expected to keep the rate at that level for a “considerable time” after the bond-buying program ended — the same language used since 2012.
Policymakers debated changing that so-called forward guidance, which is closely watched by investors. But some worried that a change “might be seen as signaling a significant shift” in policy, and most participants supported retaining the phrase.
Some economists have feared the rock-bottom interest rates would fuel high inflation. But inflation has been running below the Fed’s annual target of 2 percent.
And the minutes of the October meeting showed that policymakers expected falling oil and gas prices would hold down inflation over the near term.
Only one of the 10 committee members voted against the policy statement.
Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, dissented because he wanted the bond-buying program to continue. He also wanted the near-zero interest rate retained until the projections for inflation over the coming one to two years returned to the Fed’s annual target of 2 percent, the minutes said.