GLOBAL TURMOIL

WASHINGTON — Federal Reserve officials grew increasingly uncertain about the fate of the nation's economic recovery in January, according to documents released Wednesday, as global turmoil threw into question forecasts they had made just six weeks earlier.

Minutes of the central bank's policy meeting in January showed that officials acknowledged that the continued decline in energy prices and the ongoing strength of the U.S. dollar have resulted in prices rising more slowly than they expected.

That, in turn, was holding back the Fed's hope of pushing inflation up to 2 percent, one of its chief missions.

The Fed did not change its target for interest rates in January after raising them for the first time in nearly a decade in December, a move that was supposed to signal the central bank's confidence in the resiliency of the U.S. economy. Now, many analysts think the Fed will stay its hand again when it meets in March. Some have predicted that the central bank will not raise rates again this year.

The details of January's meeting underscore just how cautious officials had become following dramatic declines in world financial markets at the start of the year. Almost all officials pointed to tighter con-

ditions, including wider credit spreads and stricter financing for speculative-grade firms and small businesses. If the volatility kept up, officials believed it could amplify the risks to America's recovery.

"Most policymakers thought that the extent to which tighter conditions would persist and what that might imply for the outlook were unclear, and they therefore judged that it was premature to alter appreciably their assessment of the medium-term economic outlook," the minutes state.

Driving much of the turmoil was fear of slower growth in China. Though officials noted that the country's direct exposure through trade was small, some officials were concerned that the broader effects of weakness in China and other emerging markets could weigh on the U.S. economy, the minutes show. Officials also noted that any turnaround in oil prices was unlikely to occur quickly.

There were bright spots, however. Hiring remained robust, the size of the labor force grew slightly, and some officials reported shortages of workers in their districts. Most officials forecast solid employment gains this year as well.

The ongoing strength of the labor market was cited as a key component of several officials' belief that inflation would eventually reach the Fed's target. But some were worried that market measures of inflation, along with some surveys, showed the public's expectation of inflation was diminishing.

"Although most participants continued to expect that inflation would rise to the (Fed's) 2 percent objective over the medium term, a number of participants indicated that ... they viewed the outlook for inflation as somewhat more uncertain or saw the risks as being to the downside."

Staff reports showed that access to credit was unchanged for most nonfinancial businesses, commercial and residential real estate, and consumers. Fed staff also predicted that the slowdown in economic growth at the end of last year was caused by lower inventory investment and weather and was likely to be reversed.

The Fed had indicated in December that it anticipated hiking rates four times this year, but that forecast now seems unlikely. The central bank has long emphasized that the pace of rate increases will depend on the evolution of the economy. If the recovery is faster than expected, the Fed can move more quickly. But if it disappoints, the Fed will go more slowly.

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