Fed of­fi­cials dis­cussed hik­ing rates to ‘re­stric­tive’ level

The Myanmar Times - Weekend - - International Business -

FED­ERAL Re­serve of­fi­cials last month de­bated how high they should raise in­ter­est rates to achieve their eco­nomic goals, with some ar­gu­ing that they might need to lift rates to a level that would mod­estly re­strain growth.

In the end, the Fed mod­estly raised its key short-term rate and pre­dicted that it would con­tinue to grad­u­ally tighten credit to man­age growth and in­fla­tion amid a steadily healthy job mar­ket and econ­omy.

The dis­cus­sion, re­vealed Wed­nes­day in min­utes of the Fed’s Sept. 2526 pol­icy meet­ing, showed that a few par­tic­i­pants thought the Fed’s key rate would need to “be­come mod­estly re­stric­tive for a time” to pre­vent in­fla­tion from climb­ing too high. Other of­fi­cials said they would op­pose a re­stric­tive rate pol­icy with­out clear signs of an over­heat­ing econ­omy and ris­ing in­fla­tion.

The min­utes did not in­di­cate that of­fi­cials reached a con­clu­sion. But they did show that all Fed of­fi­cials fa­vored grad­ual rate in­creases.

Economists said that the min­utes sup­ported the wide­spread view that the Fed is go­ing to keep slowly rais­ing rates in re­sponse to strong growth.

“Over­all, noth­ing here to change our view,” said Paul Ash­worth, chief U.S. econ­o­mist at Cap­i­tal Eco­nomics.

Many economists say they think growth will start to slow next year as the ef­fects of tax cuts and in­creased gov­ern­ment spend­ing be­gin to wane.

After the Fed raised its key pol­icy rate at last month’s meet­ing for the third time this year, the ac­tion was im­me­di­ately as­sailed by Pres­i­dent Don­ald Trump as a risk to the econ­omy’s con­tin­ued strength un­der his watch.

In re­cent weeks, Trump has es­ca­lated his at­tacks, spark­ing alarm among Fed watch­ers and economists. The Fed has long been seen as need­ing to re­main free of po­lit­i­cal pres­sure to prop­erly man­age rates, and pres­i­dents have gen­er­ally re­spected that in­de­pen­dence, es­pe­cially pub­licly.

Trump, though, has stepped up his at­tacks of late, and in an in­ter­view Tues­day he went so far as to call the Fed, with its steady rate hikes, “my big­gest threat.”

The pres­i­dent’s crit­i­cism in­ten­si­fied after last week’s big stock mar­ket tum­ble, which has been partly re­versed this week. Ris­ing rates can of­ten de­press stock prices by lead­ing in­vestors to shift money out of stocks and into bonds to cap­ture higher yields.

Trump’s at­tack aren’t men­tioned in the min­utes of the Septem­ber Fed meet­ing. Jerome Pow­ell, whom Trump chose as chair­man after de­cid­ing not to of­fer Janet Yellen a sec­ond term, has said the Fed won’t be in­flu­enced by out­side crit­i­cism in manag­ing the econ­omy to try to max­i­mize em­ploy­ment and keep prices sta­ble.

In the­ory, Trump’s con­cern that the Fed could po­ten­tially threaten eco­nomic growth isn’t with­out cause. A re­port last year from Gold­man Sachs doc­u­mented that the most com­mon cause of the 12 post-world War II re­ces­sions it stud­ied was ex­ces­sive credit tight­en­ing by the Fed­eral Re­serve.

The min­utes showed that of­fi­cials were gen­er­ally pleased, though, with how the econ­omy is un­fold­ing this year, with strong job growth and in­fla­tion hov­er­ing near the Fed’s 2 per­cent goal. The min­utes noted that the tax cuts Trump had pushed through Con­gress late last year, along with the spend­ing in­creases Con­gress ap­proved at the start of this year, were help­ing boost eco­nomic ac­tiv­ity.

The min­utes of the meet­ing re­vealed some con­cerns about the con­se­quences of Trump’s com­bat­ive trade ac­tions, in­clud­ing the sweep­ing ar­ray of tar­iffs he has im­posed on im­ports. The Fed noted that busi­ness con­tacts had ex­pressed wor­ries about lost mar­kets and ris­ing prices for steel and alu­minum.

After last month’s meet­ing, the Fed is­sued a fore­cast that pre­dicted one more rate in­crease be­fore year’s end, three more in 2019 and a fi­nal one in in 2020. At that point, the pol­icy rate would be 3.4 per­cent, ac­cord­ing to the me­dian of Fed of­fi­cials’ in­di­vid­ual fore­casts, above the 3 per­cent level that the cen­tral bank now pegs as its “neu­tral rate.” The neu­tral rate is the point at which the Fed be­lieves its pol­icy would be nei­ther boost­ing growth nor re­strict­ing it. – AP

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