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Global slowdown made policymakers hesitant to raise rates

By Doug G. Ware
The U.S. Federal Reserve decided to leave interest rates unchanged when it met last month -- largely due to a global economic downturn that policymakers were afraid had the potential to negatively influence the expanding U.S. economy, according to the central bank's minutes report, released Thursday. Federal Reserve chief Janet Yellen (pictured) has since said the rates, which have been unchanged since 2009, may rise before the end of 2015. Photo by Kevin Dietsch/UPI
The U.S. Federal Reserve decided to leave interest rates unchanged when it met last month -- largely due to a global economic downturn that policymakers were afraid had the potential to negatively influence the expanding U.S. economy, according to the central bank's minutes report, released Thursday. Federal Reserve chief Janet Yellen (pictured) has since said the rates, which have been unchanged since 2009, may rise before the end of 2015. Photo by Kevin Dietsch/UPI | License Photo

WASHINGTON, Oct. 8 (UPI) -- The Federal Reserve released details Thursday of its policy meeting last month, shedding new light on why the central bank declined to raise key interest rates -- instead leaving them untouched for six years running.

The Fed's minutes, posted on the bank's website, said that policymakers decided to leave the rates alone even though there were influential indicators -- such as rising inflation -- that the U.S. economy could withstand a hike.

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Specifically, the overriding concern was that a global economic slowdown could knock the domestic economy off track. In that scenario, raising interest rates could cause far more harm than good for an economic climate that has already struggled to make strides since the financial crisis ended in 2009.

Erring on the side of caution, the Fed policymakers deemed it "prudent" to leave the rates unchanged and wait out the effects of the global downturn to be safe.

"The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however," the Federal Reserve said in the minutes.

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"Over the intermeeting period, the concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of U.S. monetary policy," it added. "Recent information on real U.S. economic activity was generally stronger than expected, but equity prices declined, the foreign exchange value of the dollar appreciated further, and indicators of foreign economic growth were generally weak."

In evaluating the climate during the meeting, which occurred Sept. 15-16, the central bank weighed the likely forecasts for the short and long term.

"Participants submitted their projections of the most likely outcomes for real output growth, the unemployment rate, inflation, and the federal funds rate for each year from 2015 to 2018 and over the longer run," the Fed wrote.

Some analysts expect the Fed to raise interest rates before the end of the year, but this week many experts shifted that expectation to 2016 in view of new, less promising data. A report Monday said fewer than 200,000 new jobs were created in September for the second straight month.

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