Coverage: Fed minutes point to another rate hike soon
The Federal Reserve Board released the minutes of its most-recent meeting on Wednesday, and the disclosure indicated that an interest rate hike would happen soon.
The minutes of the Jan. 31-Feb. 1 discussion, at which the U.S. central bank voted to keep rates unchanged, also showed the depth of uncertainty at the Fed because of a lack of clarity on the new Trump administration’s economic program.
“Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations,” the Fed said in the minutes.
Last week, Fed Chair Janet Yellen said waiting too long to raise rates again would be “unwise” and gave a strong indication that the central bank remains on track to consider raising rates again by the summer.
Fed Governor Jerome Powell, one of the voting members at the central bank’s last policy meeting, said on Wednesday a rate hike would be on the table at the Fed’s next meeting in March.
Gregg Robb of MarketWatch.com reported that President Donald Trump’s policies may affect the Fed’s thinking:
According to the minutes, officials struggled what to do with interest rates in light of the “considerable uncertainty” surrounding the fiscal policy plans of the Trump administration and Republican Congress.
Only a “couple” of the 17 Fed officials argued that uncertainty over fiscal policy should not delay a near-term rate hike.
Most officials said it would take “some time” for the outlook on fiscal policy to become clearer.
Other Fed officials cautioned against adjusting interest rates “in anticipation of policy proposals that might not be enacted, or that, if enacted might turn out to have different consequences for economic activity and inflation than currently anticipated,” the minutes said.
These issues are likely to remain when the Fed next meets on March 14-15 to set interest rate policy.
Dave Shellock and Jamie Chisholm of the Financial Times reported a rate hike is unlikely in March:
But Nick Stamenkovic, independent market strategist at NFS Macro Consulting, said the main message from the minutes was that there was no urgency to hike rates.
“All in all the Fed looks unlikely to hike rates at March’s FOMC meeting,” he said. “Much will depend on the pivotal February employment report. “Indeed a strong rebound is average earnings is needed to convince the bulk of the committee [to raise rates] next month rather than wait until June.”
Harm Bandholz, chief US economist at UniCredit, agreed. “No March hike,” he said.
“First, ‘many’ is not the majority; second, this group includes several non-voting regional Fed presidents; and finally, ‘fairly soon’ does not necessarily mean March.
“More broadly, the minutes continued to show the split within the Committee, when it comes to the assessment of the outlook and the associated risks [to the economy]. We think that in particular the majority of the more influential Board members still prefers to err on the side of caution.”