Bullard Warns of a U.S. Recession If Fed Keeps Raising Rates

Consumer credit outstanding

Consumer credit outstanding

United States central bankers "can afford to be patient" before raising interest rates again, given low inflation and uncertainty about the outlook, according to the minutes of the Federal Reserve's December policy meeting.

"Monetary policy was not on a preset course; neither the pace nor the ultimate endpoint of future rate increases was known", the minutes said.

The Federal Reserve is one of the most important institutions in global finance because it influences the cost of debt worldwide by raising or lowering its base interest rate.

"If the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral level", he said, pointing to a policy rate between 3 and 3.25 percent.

As inflation shows no signs of accelerating much beyond the Fed's two per cent target, there is no urgent need to raise the benchmark lending rate further, he said.

The Fed raised the benchmark interest rates in December for the fourth time a year ago but the minutes said "a few" participants favored holding off, saying there was "latitude to wait and see".

But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes.

His prepared remarks gave no hard timeline for further rate hikes but they hinted he could agree to stand pat until around mid year to see how factors like global growth and USA trade and fiscal policy pan out.

He agreed with the prevailing view of the U.S. economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.