THERE was always a risk that the Fed's first rate would touch off global financial instability, that it would squeeze China and push up the dollar, that commodity prices would fall and that the expected rise in American inflation would fail to materialise on the schedule the Fed anticipated. The Fed was aware of all these risks as it debated whether to hike in December. Minutes from that meeting state that:
Participants generally agreed that the drag on U.S. economic activity from the appreciation of the dollar since the summer of 2014 and the slowdown in foreign economic growth, particularly in emerging market economies, was likely to continue to depress U.S. net exports for some time. Many expressed the view that the risks to the global economy that emerged late this summer had receded and anticipated moderate improvement in economic growth abroad in the coming year as currency and commodity markets stabilized. However, participants cited a number of lingering concerns, including the possibility that further dollar appreciation and persistent weakness in commodity prices could increase the stress on emerging market economies and that China could find it difficult to navigate the cyclical and structural changes under way in its economy.
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