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Fed officials see strengthening USA economy, inflation

Fed officials see strengthening USA economy, inflation

Fed officials see strengthening USA economy, inflation

Even with the improved outlook, a "strong majority" of Fed officials voiced concern that a trade war would harm the economy, and some policymakers said the recent turbulence in financial markets highlighted risks to growth, the minutes showed. "In addition, all participants expected inflation on a 12-month basis to move up in coming months". At the session's conclusion, officials announced they would raise interest rates for the sixth time since the end of the last recession, in the range of 1.5 to 1.75 percent.

United States stocks, Treasuries and the dollar were little changed following their publication. "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. It sees another two rate rises this year, although quarterly forecasts at the last meeting showed more officials than in December were supportive of three more hikes in 2018.

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.

The minutes suggest that Fed officials are worrying more about that possibility than they have acknowledgedpublicly: "Most participants also cited trade policy as a source of either uncertainty or downside risk", the minutes say.

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

USA central bankers saw costs and benefits to an economy operating "well above potential", ranging from a faster return of inflation to target and an increase in labor force participation. The Fed said at the time the economy was continuing to get stronger and the central bank remained on track to keep raising rates gradually.

A number said the outlook for the economy and inflation could lead to a slightly steeper path of rate increases over the next few years and some suggested that at a given point the Fed might have to change its statement language to acknowledge monetary policy would have to move to a neutral or "restraining factor" for economic activity.

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

Several thought it would likely also become appropriate at some point for interest rates to rise above the Fed's longer-run estimate for a time.

Trade tensions with Beijing have escalated in recent weeks since Trump announced the tariffs and targeted China for additional 25 per cent punitive duties on almost US$50 billion in goods for its alleged theft of U.S. intellectual property.

On the subject of the recent bout of volatility in global financial markets, "a few" policymakers were concerned that a lengthy period with the economy operating above its potential rate of growth might, over time, pose financial stability risks.

Trade tensions between both countries have recently escalated as they announced tariffs on key products they buy from each other, ranging from Chinese aluminium and steel to American orange juice and soybeans.

The meeting was the first under the Fed's new chairman, Jerome Powell. Many market players forecast the Fed will raise the key rate at their policy meeting in June.

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