US Fed may soon raise rate
THE Federal Reserve said the economy’s continued growth might persaude it to raise its benchmark interest rate soon, potentially at an upcoming meeting, according to new documents released on Wednesday, even as it acknowledged the ambitious policies proposed by the Trump administration could have unforeseen effects on the US economy.
Minutes released this week from the Fed’s meeting in January suggested that tax cuts and spending proposals floated by the Trump administration continue to loom large over the Federal Reserve’s decisions. While the Fed chose to leave its interest rates unchanged at a meeting three weeks ago, investors widely expect two to three more rate hikes this year, perhaps as early as March, as the Fed continues on its path of gradually raising interest rates to combat gathering inflation.
The central bank said it continues to carefully watch for signs that inflation will overshoot its longer-run target of 2 percent. But while some members of the committee judged that a tighter labour market could trigger price increases in the future, others argued that inflation remains below the long-run target of 2 percent, and that the threat of rapid inflation was not imminent.
The minutes showed the Fed weighing both upside and downside risks from Trump administration policies. If enacted, tax cuts of the kind proposed by the Trump administration would likely increase the amount of money in the economy and could lead to more inflationary pressures.
On the other hand, policies that encourage greater invest- ment in the US could also lead to an appreciation in the dollar, which would make US exports seem relatively more expensive and drag on growth. A trade war could also slow US exports or destabilise foreign economies.
The minutes showed that some members of the committee argued that the Fed should continue undeterred on its path of gradually raising interest rates, since many other factors will influence the economy. Others “cautioned against” designing monetary policy to address fiscal policy that might never be enacted or might turn out to have different consequences than anticipated.
The Federal Reserve’s decision was unanimous, with all 10 current members of the deciding committee voting to keep interest rates unchanged at 0.5 percent to 0.75 percent, following the central bank’s decision to lift interest rates at its previous two-day policy meeting in December.