Federal Reserve discussed ‘ slightly steeper’ rate hikes
WASHINGTON — Federal Reserve officials signaled rising confidence last month that a strong economy will lift inflation closer to its 2 percent target and that they may accelerate the Fed’s pace of interest rate hikes as a result.
The minutes of the Fed’s March 20- 21 meeting, which were released Wednesday, showed that a number of participants believed that a stronger outlook for economic activity plus rising inflation implied that the path for the Fed’s key interest rate in coming years could be “slightly steeper” than expected.
The minutes showed that some Fed officials felt it might eventually choose to revise the Fed’s policy statement to indicate a need to move past an “accommodative” level of rates to one that restrained economic activity slightly to keep inflation in check.
Private analysts noted that this discussion in the minutes marked the first time since the Great Recession that the central bank has discussed the possibility of adjusting interest rates to actually restrain economic growth.
“There it is. The first acknowledgment that they might have to tighten monetary policy, take away the punch bowl, raise interest rates high enough to slow the economy down,” said Chris Rupkey, chief financial economist at MUFG Union Bank of New York.
But analysts noted that this prospect is still down the road, with many still expecting three quarter- point rate hikes this year, the same as last year. The Fed’s next meeting is May 1- 2. Analysts think the Fed won’t lift rates then but will wait until June to make another move higher.
At the March meeting, the central bank boosted its key policy rate by a quarterpoint to a still- low level of 1.5 percent to 1.75 percent. Inflation, by the Fed’s preferred gauge, has persistently fallen below the 2 percent target over the past six years.
However, at least some Fed officials believe that inflation has finally begun to move higher.
The meeting in March was the first led by Jerome Powell, who took over as chairman of the Fed in early February. He succeeds Janet Yellen, who was not offered a second term by President Donald Trump.