Fed Minutes to Give Clues on Officials' View of Economy, Rate Path

Fed sounds the alarm on the damage a trade war could do to the US economy

In the minutes of Mar 20-21 monetary policy meeting, when the Fed raised the benchmark interest rate for the first time this year, the Fed also cited "other issues and uncertainties associated with trade policies" as risks to the outlook.

The minutes showed some division among Fed officials on whether March was the right time to raise the key lending rate, but even so, the decision to hike by 25 basis points was unanimous among the voting members.

"All members viewed the recent data and other developments bearing on real economic activity as suggesting that the outlook for the economy beyond the current quarter had strengthened in recent month", the meeting minutes read.

U.S. stocks, Treasuries and the dollar were little changed following their publication.

They also saw the jobless rate falling to 3.6 percent by the end of 2019, further below their 4.5 percent estimate of unemployment's long-run sustainable rate. "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.

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 addition, officials believed that the $1.5 trillion income tax cut package, along with the $1.3 trillion spending bill, would provide a boost. The increase in March was the sixth rise since the central bank began a tightening cycle back in December 2015.

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

The Fed released the document on Wednesday.




New projections released after the meeting showed officials.

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

Despite the concern over trade policy, the discussions by the Fed's policy-setting Federal Open Market Committee said the economy was expected to grow at a solid pace. 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.

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

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

The Committee noted concern as the Administration's recent tariffs on imported steel and aluminum increase the risk of retaliatory trade actions by other countries.

"There's no thought that changes in trade policy should have an effect on the current outlook", Mr. Powell said at the news conference, adding that could change if a global trade dispute escalated. Many market players forecast the Fed will raise the key rate at their policy meeting in June.

The big issue that's dominated markets news since then has been USA trade frictions with China, with both countries announcing tariffs on key products they buy from each other.

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