The two items most frequently mentioned were tariffs and debt. The U.S. and its trading partners – China in particular – have been engaged in a volley of tariffs this year, while corporations, notably those with weaker balance sheets and lower credit ratings, continue to load up on debt.
“Several participants were concerned that the high level of debt in the nonfinancial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability, which could exacerbate the effects of a negative shock on economic activity,” the minutes said. “The potential for an escalation in tariffs or trade tensions was also cited as a factor that could slow economic growth more than expected.”
The economy has been growing solidly, with GDP increasing 3.5 percent in the third quarter and the unemployment rate at a generational low of 3.7 percent.
Housing market weakness has been a drag on growth, though, and officials attributed the slowness to rising mortgage rates.
Members also noted worry that companies might struggle to pass on rising input costs, again from tariffs, onto consumers and create detrimental inflation.
More immediately, members reported that activity in the agricultural market is “depressed” due to “the effects of trade policy actions on exports and farm incomes.”
While affirming their commitment to a rate increase over the short term, members also noted that actions after that would be dependent on incoming data. Fed Chairman Jerome Powell and others central bank officials have emphasized the importance of data dependence in recent public commentary.
“Monetary policy was not on a preset course; if incoming information prompted meaningful reassessments of the economic outlook and attendant risks, either to the upside or the downside, their policy outlook would change,” the minutes said.