Fed shows low inflation worries

Meeting minutes reveal fiscal stimulus uncertainty

US Federal Reserve policymakers showed worry over the fate of currently low inflation and saw recent tax changes as providing a boost to consumer spending, according to the minutes of the US central bank’s last policy meeting on December 12 and 13 released on Wednesday (US time).

The details of the meeting, at which the Fed raised interest rates for the fifth time since the 2008 financial crisis, also showed that officials have a similar lack of certainty over the impact of fiscal stimulus on raising price pressures.

“Most participants reiterated their support for continuing a gradual approach to raising the target range, noting that this approach helped to balance risks to the outlook for economic activity and inflation,” the Fed said in the minutes.

They then mulled over the dual possibilities that the Trump administration’s tax cuts or easy financial conditions could cause inflation pressures to build unduly, while at the same time considered that actual or expected inflation may fail to rise to the Fed’s 2 percent target.

US stocks were little changed following the publication of the minutes, as were US Treasury yields. The US dollar extended gains against a basket of currencies.

The inflation shortfall is set to dominate incoming Fed Chair Jerome Powell’s first few months as chief of the central bank with further rate increases becoming more difficult to justify without an upswing.

“They have been taking a middleof-the-road on their policy approach... if inflation picks up, they will go faster [on rate rises]. If things slow down, they will go slower,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in Stamford, Connecticut.