Given these differences, it should come as no surprise that “the decision at this meeting was a close call.” After all, the economic considerations are rather balanced. Indeed, as I have argued previously, it is hard to expect a tie-breaking stance to emerge. But this is not to say such a position doesn’t exist. It is just that Fed officials seem hesitant to embrace it openly.
Although the minutes contain some mention of the risk of excessive leverage, as well as the danger from higher savings due to threats to the institutional effectiveness of long-term providers of financial services (such as pensions, endowments and life insurance), Fed officials appear to have shied away from a discussion of how prolonged reliance on ultra-low rates (and negative ones in Europe and Japan) is increasing the threat of future economic and financial instability.
Had officials taken these circumstances into account, an understandably “close call” on economic considerations alone would have turned into an argument to hike interest rates, and could have been a reminder to market participants that this cycle will be unusually shallow, with irregularly paced increases and an endpoint that is far lower than historical averages.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.