Federal Reserve minutes suggest slow path to rate hikes

(Reuters) - Federal Reserve policymakers expressed concern last month that raising interest rates too soon could pour cold water on the U.S. economic recovery, and fretted over the impact of dropping "patient" from the central bank's interest rate guidance. KEY POINTS: * At the central bank's last policy-setting meeting in January, Fed officials debated the impact that stubbornly low inflation measures were having on the central bank's confidence in moving ahead with raising rates. * They also noted how China's economic slowdown and tensions in the Middle East and Ukraine posed downside risks to the U.S. economic growth outlook, according to minutes from the Federal Open Market Committee's Jan. 27-28 meeting. COMMENTS: ANTHONY VALERI, INVESTMENT STRATEGIST, LPL FINANCIAL, SAN DIEGO: “I would agree with the dovish interpretation. Positive view of the economy, but two points to me stand out. One is the more in-depth discussions around inflation. Not that it was terribly conclusive, but it indicates that the Fed is pondering the possibility inflation may stay lower for longer, certainly well below their 2 percent target that would justify the first rate hike. "The second was that many, quote many, thought the rate could stay at zero for longer, and that the second indication that a June hike, which I don’t think was expected by many folks, that a June rate hike is increasingly unlikely. “The January jobs reports is one reason why you have to take these minutes for a grain of salt, they did not have that at the time of this meeting, and there is only so much weight you can put on these minutes here. It does tee up an interesting conversation next week when Janet Yellen speaks before Congress." ALAN GAYLE, SENIOR INVESTMENT STRATEGIST AT RIDGEWORTH INVESTMENTS IN ATLANTA, GEORGIA: “The minutes reflect our view that while the economy is growing, an interest rate liftoff is not a slam dunk at this point...Clearly there are some more dovish members that feel the economy is still not strong enough to support steady pricing, so that is holding the Fed back from normalizing policy. “This appears to be more dovish than I expected. We got a hint of the Fed’s concern about global conditions in the post-meeting statement, and so this was fleshed out a bit more in the minutes. “Typically, the Fed is almost entirely domestic-focused, so for them to officially add to their list of indicators the global economic condition is a significant policy shift.” BRIAN DOLAN, CHIEF MARKET STRATEGIST, DRIVEWEALTH LLC, CHATHAM NEW JERSEY: "Very dovish minutes. The minutes suggest this is a Fed in no rush to start hiking, and if anything they dwelled on the headwinds and risks facing the U.S. outlook, from the strength of the dollar to international concerns. The pendulum swings away from June tightening yet again." CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK: “The headlines are more dovish. The Fed seemed worried about the economic fallout from a number of things, including Greece and falling oil prices and even a stronger dollar. All this suggested the Fed is less inclined to raise rates. All that said however, all of those things have evolved since the January FOMC meeting. Europe is looking a bit better. Greece is a less of a concern. Oil has stabilized and even climbed a bit. On balance, I don’t know if it’s enough to change the Fed’s current trajectory on a rate hike. But it is enough to undermine the market’s newfound confidence of a June rate hike after the recent payrolls report. If you are trying to trade the Fed, three of the four voting regional bank presidents are among the most vocal doves out there. But they are still outnumbered by the Fed governors.” AARON KOHLI, INTEREST RATE STRATEGIST, BNP PARIBAS, NEW YORK: “The headlines were talking a lot about the potential for delay, the discomfort that some FOMC members felt with raising rates too quickly, you saw the market react to that. There were some useful phrases about inflation expectations. We haven’t had a very good view of inflation, there is really no measure that has shown robust inflation, so the fact that the Fed is noticing that is a change from what we have seen in the past where every measure, even their own, falls and they haven’t responded much to that change. It’s refreshing to see that they did acknowledge that at least.” MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER AT ALLIANZ, NEWPORT BEACH, CALIF.: “The minutes highlight the delicate and tricky policy balances that the Fed is seeking to strike, and not just due to domestic considerations. International factors are making their task even more complicated. Markets have interpreted the minutes as lowering the probability of a June rate hike.” RICK MECKLER, PRESIDENT, LIBERTYVIEW CAPITAL MANAGEMENT, JERSEY CITY, NEW JERSEY: “The reality is it’s really nothing new. For people who were expecting some major shift, you’re not seeing it here. So you’re left with stocks have been on an extended rally, and the likelihood that while we may come to a bit of a pause in the rally, there’s nothing to really force profit-taking. On a first rate hike: "I don’t think it moves the needle. But what is disconcerting in general is the economy hasn’t rallied more strongly, and their recognition that it’s still a very tepid recovery. The message is unfortunately more of the same in terms of economic growth, and it’s likely to be more of the same in terms of a very accommodative monetary policy." GARY THAYER, HEAD OF GLOBAL MACRO STRATEGY AT WELLS FARGO INVESTMENT INSTITUTE IN ST. LOUIS: “We get a little more details than what we got from their statement right after the meeting, and although it was a unanimous decision at the time of the meeting, there was some difference of opinion and that is being interpreted right now in the markets. A rate hike is still possible but it’s not necessarily a sure thing. "There is some concern of course about global events and what has been happening overseas with Greece and Ukraine and some of the slow wage growth we saw in reports prior to this meeting. But generally, the economy is doing better so these minutes don’t rule out a Fed rate hike. It’s still on the table, there is just a little more uncertainty as to when it may happen. They repeated their statement that moves are likely to be data dependent, which means you can expect anything depending on what happens in the economy. So there is nothing definitive here, just a little more of the open-ended possibility that they are not necessarily going to be quick to move.” GREG PETERS, WHO HELPS MANAGE OVER $543 BILLION IN ASSETS AS SENIOR INVESTMENT OFFICER AT PRUDENTIAL FIXED INCOME, A UNIT OF PRUDENTIAL INVESTMENT, NEWARK, N.J.: “I think it’s probably much more dovish than anybody anticipated, that’s for sure. I think June is going to be hard for them to move but that’s not to say they won’t. The data are not supportive of that view of a rate rise in June. We’ve added back duration. I think the general idea from our perspective is that when rates get over 2 percent, we get interested.” WAYNE KAUFMAN, CHIEF MARKET ANALYST AT PHOENIX FINANCIAL SERVICES IN NEW YORK: “This isn’t a surprise. I don’t expect a rate hike this year. There’s still a lot of slack in the economy, as we saw this morning with the capacity utilization number. More importantly, you have central banks around the world lowering interest rates. I think the Fed just doesn’t want to go against that. It sees that the global economy isn’t strong enough for rates to go up. “We’ve been thinking equities are the place to go for a while. This is an ideal environment for equities. You don’t have much coupon protection for bonds, and you have plenty of sectors and individual companies that are doing well. We’re not buying the whole market; our key word is selectivity. I’m not making the case that a rising tide will lift all boats, but there are still plenty of pockets of growth out there.” MARKET REACTION: STOCKS: U.S. stock indexes were modestly higher on the newsBONDS: U.S. bond prices added to gainsFOREX: The dollar fell against the euro and yen (Americas Economics and Markets Desk; +1-646 223-6300)