Risks remain but US recession threat receded: Fed minutes

Risks to the US economy remain, but key trade uncertainties have eased and the threat of a downturn has receded, according to the minutes released Friday of the Federal Reserve’s last meeting.

The record of the central bankers’ discussion last month shows some relief that the trade war with China seemed to have been defused, along with the risk of Britain crashing out of the European Union.

Fed officials noted that “the domestic economy was showing resilience in the face of headwinds from global developments.”

And more encouraging, economic models “suggested that the likelihood of a recession occurring over the medium term had fallen noticeably in recent months.”

At its final meeting of 2019, on December 10-11, the Fed’s policy-setting Federal Open Market Committee left the benchmark interest rate in the target range of 1.5-1.75 percent, after cutting rates three times last year in their effort to buoy the economy amid multi-front trade wars.

The meeting was held before President Donald Trump announced a “phase one” trade deal with China that averted another round of damaging import tariffs and possible retaliation -- a prospect that had been weighing heavily on US businesses.

Trump announced this week that the deal was due to be signed in Washington January 15 -- although new fears of conflict with Iran have added a fresh level of uncertainty.

The minutes said that while “many” central bankers “saw the risks as tilted somewhat to the downside, some risks were seen to have eased over recent months.”

Still, they pointed to “trade developments and concerns about the global economic growth outlook as the main factors contributing to weak business investment and exports.”

That sentiment was confirmed Friday when an industry survey showed the US manufacturing sector slowed further into recession last month, falling to its weakest point since mid-2009.

And Fed officials also pointed to “new uncertainties” in US trade policy with Argentina, Brazil, and France, and political tensions in Hong Kong.

While the central bank’s December vote on the key interest rate was unanimous, the minutes showed policymakers may not be fully on board with Fed Chairman Jerome Powell’s position that they should maintain the current stance until something happens to “materially” change the economic outlook.

A number of officials said remaining on hold would give them time to assess new developments, and gauge the effect of the three rate cuts in “cushioning the economy from the global developments” and getting persistently-low inflation back up to the Fed’s 2 percent goal.

But other Fed members again raised concerns that keeping interest rates too low for too long “might encourage excessive risk-taking” which could in turn make the next recession more severe.