Fed meeting minutes show all policy-makers predicting a strengthening economy

Fed meeting minutes show all policy-makers predicting a strengthening economy

Minutes from the March 20-21 policy meeting of the Federal Open Market Committee (FOMC) showed that all participants were confident both the economy and inflation will improve in a way that would justify further gradual increases in the federal funds rate.

The Fed's target range for its benchmark lending rate is now between 1.50 and 1.75 percent.

"All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months,"the Fed said in the minutes".

As a result of the strengthening economy and labor market, Fed officials expected inflation would move up in the coming months. "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.

The Fed has raised its target range for overnight bank borrowing, known as the fed funds rate, six times since late 2015.

Any negative effects from tariffs could put the Fed in a bind, forcing policymaker to break what Mr. Powell and his predecessors have repeatedly characterized as a delicate balance between supporting economic growth and job creation, and holding inflation to the target growth rate. In December, two policymakers thought that inflation was more likely to be lower than expected and two thought higher than expected was more likely.

The Fed's preferred measure of inflation now sits at 1.6 per cent and has undershot its 2 per cent target rate for six years but various indicators have recently pointed to an uptick in price pressures.

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The officials also expressed uncertainty about how newly enacted tax cuts would affect the economy, partly because the cuts are expected to exacerbate the swelling of federal budget deficits, and because some of the cuts are to expire in the years ahead.

The details released on Wednesday showed more Fed policymakers believe inflation could well be higher than they now expect.

As well, they expect the economy to remain strong enough to support the Fed's policy path of gradually raising interest rates.

Since then, China and the United States have announced additional tariffs on key products.

The prospect of a trade war poses "downside risks" to the USA economy, which otherwise is poised to grow at a solid pace, the Federal Reserve said on Wednesday (Apr 11).

"Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook", the minutes read, "but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the USA economy".

The official statement released immediately after the March meeting did not mention trade policy concerns, which roiled financial markets after the Trump administration announced its plans to impose tariffs on imported steel and aluminum, as well as on some other Chinese goods.