After a dovish pivot at its last meeting, the Federal Open Market Committee (FOMC) released minutes from its two-day January meeting on Wednesday. In the minutes, the Fed laid out more detail as to why it decided to be patient with monetary policy, and it also offered more clarity on its plans for balance sheet normalization.

Taking a pause

Following four rate hikes in 2018, the Fed announced last month that it would hit the pause button and keep benchmark federal funds rates steady at the 2.25% to 2.5% target range, but it was unclear how long the central bank planned on doing so.

The Fed’s decision to remain “patient” was in response to a steep selloff in the stock market at the end of last year coupled with concerns over a global economic downturn.

The FOMC meeting minutes included 13 mentions of the word “patient,” and according to the minutes, there were a “variety of considerations that supported a patient approach.” Furthermore, “a patient posture would allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge and, in particular, could allow policymakers to reach a firmer judgment about the extent and persistence of the economic slowdown in Europe and China.”

Fed Chair Jerome Powell mentioned that the central bank would be assessing such risks before making a decision on whether or not to continue hiking short-term interest rates. The Fed stated in its January statement “the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low.”

Nevertheless, since the Fed’s meeting in January, there has been a slew of disappointing economic data. Retail sales and industrial production data were below economist projections, and there has been a continued rise in initial jobless claims. The Fed indicated that it would remain data-dependent and language from the minutes suggested that, “participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes over the next few years.”

The financial markets surged following the news that the Fed was putting interest hikes on hold. However, the minutes showed that some participants left open the possibility of raising rates later this year.

“Inflation pressures were muted, and asset valuations were less stretched than they had been a few months earlier,” according to the FOMC minutes. Several of the participants “argued that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook. Several other participants indicated that if the economy evolved as they expected, they would view it as appropriate to raise the target range for the federal funds rate later this year.”