MercoPress. South Atlantic News Agency

Fed close to increasing rate, according to minutes; IMF again calls on Yellen for prudence

Because of the risks to the outlook for economic activity and inflation, “FOMC decided that it was prudent to wait for additional information” said the minutes

The US Federal Reserve believes the US economy was close to warranting an interest rate hike in September but policymakers decided it was prudent to wait for evidence a global economic slowdown was not knocking United States off course.

 The minutes from the Sept. 16-17 FOMC meeting released on Thursday showed the Fed's policymaking committee was unsettled by signs of a global economic slowdown but didn't think this had “materially altered” the outlook for the economy.

“Nevertheless, in part because of the risks to the outlook for economic activity and inflation, the committee decided that it was prudent to wait for additional information,” the Fed said in the minutes.

The Fed surprised much of Wall Street by keeping interest rates unchanged at the September meeting.

Some policymakers have since said the decision was a close call, and the minutes showed that most of them still thought it would be appropriate to raise rates “by the end of the year.”

But in discussing how close the economy was to reaching the Fed's goals of maximum employment and 2% inflation, “many acknowledged that recent global economic and financial developments may have increased the downside risks to economic activity somewhat”.

However, voicing concerns over a slowing global recovery, International Monetary Fund managing director Christine Lagarde said the US Federal Reserve’s monetary policy shift will determine the growth recovery even when EU and Japan should continue with the easy money policies and China should hasten financial reforms.

Global growth recovery is decelerating as against the earlier years, said Lagarde, adding US monetary policy shift will indicate growth pick up. With the global economic recovery continue to remain uneven and modest, Lagarde said global monetary policies need to be updated to reinvigorate growth. The Euro area and Japan should keep monetary policy loose and the Fed should think twice before making a decision.