Published: Sat, April 14, 2018
Markets | By Terence Owen

FOMC Minutes Suggest Confidence in Strengthening Economy and Inflation

FOMC Minutes Suggest Confidence in Strengthening Economy and Inflation

All of the Federal Reserve's policymakers felt that the USA economy would firm further and that inflation would rise in the coming months, minutes of the central bank's last policy meeting on March 20-21 released on Wednesday (April 11) showed.

At the March 20-21 meeting, the Federal Open Market Committee voted to raise its benchmark interest rate by 25 basis points to a range of 1.50% to 1.75%, as had been widely expected.

The report "emphasized the Fed's optimistic economic outlook. and suggests that risks are for more hikes than now reflected in its forecasts", he said in a research note. They penciled in two more rate hikes in 2018 and three in 2019. "I think the debate rages on whether that means three this year of four this year", said Gennadiy Goldberg, an interest rates strategist at TD Securities in NY.

United States central bankers were more confident on the economic outlook when they last met to decide on policy with several of the belief that at some point in about two years' time rates would need to rise above their normal longer-run value.

The Fed's target range for its benchmark lending rate is now between 1.5 and 1.75 per cent.

Also worth noting, "a number" of the Fed's highest-ranking officials also thought that uncertainty about whether the recently approved tax cuts would become permanent or about the implications of running wider government spending deficits represented sources of downside risk to growth.

Even with the strengthening labor market, most officials "still described the pace of wage gains as moderate", according to the minutes.

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Earlier on Wednesday, one of the Fed's key measures of consumer prices, the so-called core CPI, rose 2.1 per cent year-on-year in March, the largest advance since February 2017, after increasing 1.8 per cent in February.

But the minutes say that a "couple of participants" suggested the Fed would benefit from holding off until a future meeting to raise rates, to wait for more data to confirm evidence that the rate of inflation was approaching the Fed's target of 2 percent annual growth.

However, the meeting minutes showed that already some Fed officials anxious the central bank would have to move faster than previously expected.

Fed policymakers also said at the meeting that they expected the combination of the tax cuts signed by Trump last year and a bipartisan congressional deal this year to increase federal spending to give economic output "a significant boost" in the next few years. Those tensions have roiled financial markets over potential damage to global growth. Mr. Powell acknowledged those concerns at his news conference, saying that trade policy had begun to worry business leaders who speak with Fed officials.

Fed Chair Jerome Powell stated last week that the Fed will likely need to continue raising interest rates this year to control inflation.

The big issue that's dominated markets news since then has been U.S. trade frictions with China, with both countries announcing tariffs on key products they buy from each other. The Fed is expected to maintain rates at its next meeting on May 1 and 2.

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