Fed min­utes show some of­fi­cials on fence over rate hike

Mint ST - - CORPORATE - BY CRAIG TOR­RES feed­back@livemint.com

Fed­eral Re­serve of­fi­cials held a de­tailed de­bate last month over whether forces hold­ing in­fla­tion down were per­sis­tent or tem­po­rary, with sev­eral pol­i­cy­mak­ers look­ing for stronger ev­i­dence of price gains be­fore sup­port­ing a third in­ter­est-rate hike this year.

“Many par­tic­i­pants ex­pressed con­cern that the low in­fla­tion read­ings this year might re­flect not only tran­si­tory fac­tors, but also the in­flu­ence of de­vel­op­ments that could prove more per­sis­tent,” ac­cord­ing to min­utes of the 19-20 Septem­ber meet­ing, re­leased Wed­nes­day in Wash­ing­ton.

Sev­eral pol­i­cy­mak­ers said their de­ci­sion on whether to raise rates this year “would de­pend im­por­tantly on whether the eco­nomic data in com­ing months in­creased their con­fi­dence” on in­fla­tion ris­ing to­ward their 2% tar­get.

At the meet­ing, the US cen­tral bank left the tar­get range for the fed­eral funds rate un­changed while pro­ject­ing an­other in­crease be­fore the end of the year and an­nounc­ing an Oc­to­ber start for a grad­ual un­wind of its $4.5 tril­lion bal­ance sheet.

The min­utes sug­gest the fore­cast for an­other rate hike in 2017 is con­di­tioned on eco­nomic data show­ing that the in­fla­tion tar­get is within reach over the next cou­ple of years.

“It was noted that some pa­tience in re­mov­ing pol­icy ac­com­mo­da­tion while as­sess­ing trends in in­fla­tion was war­ranted,” the min­utes said.

Be­fore the re­lease of the min­utes, in­vestors saw about a 78% prob­a­bil­ity of one more rate in­crease by the end of the year, ac­cord­ing to pric­ing in fed funds fu­tures mar­kets. Fed of­fi­cials have meet­ings sched­uled on 31 Oc­to­ber-1 Novem­ber and 12-13 De­cem­ber.

Get­ting a clear read on eco­nomic data may be dif­fi­cult as some prices, such as of petrol, are af­fected by re­cent nat­u­ral dis­as­ters in the US. The Fed’s post-meet­ing state­ment on 20 Septem­ber said the hur­ri­canes would af­fect the econ­omy in the near term but were “un­likely to ma­te­ri­ally al­ter” its course over the medium term.

The min­utes said Fed pol­i­cy­mak­ers ex­pected thirdquar­ter growth “to be held down by the se­vere dis­rup­tions caused by the storms but to re­bound be­gin­ning in the fourth quar­ter as re­build­ing got un­der way and eco­nomic ac­tiv­ity in the af­fected ar­eas re­sumed”.

Even though the Trump ad­min­is­tra­tion and Repub­li­cans in Con­gress have deemed tax re­form a top pri­or­ity, most Fed par­tic­i­pants had ei­ther not as­sumed any fis­cal stim­u­lus in their pro­jec­tions made in Septem­ber, the min­utes said, “or had marked down the ex­pected mag­ni­tude of any stim­u­lus”.

When of­fi­cials met last month, they were grap­pling with low un­em­ploy­ment that hadn’t trans­lated into con­sis­tently higher wages or in­fla­tion, while buoy­ant as­set mar­kets have kept fi­nan­cial con­di­tions easy. Many of­fi­cials said US fi­nan­cial con­di­tions would sup­port the eco­nomic ex­pan­sion, while a cou­ple of par­tic­i­pants “ex­pressed con­cern that the per­sis­tence of highly ac­com­moda­tive fi­nan­cial con­di­tions could, over time, pose risks to fi­nan­cial sta­bil­ity”, the min­utes said. BLOOMBERG

AP

US Fed­eral Re­serve chair Janet Yellen.

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