Fed minutes reveal talks on Trump plan

Federal Reserve officials last month struggled to come to grips with two big uncertainties facing the U.S. economy — whether it would be safe to let inflation rise faster for a while and how to assess the impact of President Donald Trump’s ambitious economic stimulus plans.

Minutes of the Fed’s discussion at their March meeting released Wednesday showed near-unanimous support for the quarterpoint increase in its key policy rate, the second rate hike in three months. But there was less agreement over the issues of inflation and Trump’s economic plans. The group decided to keep signalling that future rate hikes would be gradual but be prepared to respond quickly to changes in the outlook. Many believe the Fed will hold rates steady at the May meeting.

The minutes also showed that Fed officials had a briefing from staff over the central bank’s massive US$4.5 trillion balance sheet, which was quadrupled during the financial crisis and its aftermath as it engaged in successive rounds of bond purchases as a way to lower long-term interest rates and give the weak economy a boost.

The minutes said that Fed officials agreed that if the economy continued to perform as expected that “a change in the committee’s reinvestment policy would likely be appropriate later this year.”

The minutes showed that several Fed officials believed that Trump’s stimulus plans would likely not begin until next year. The minutes said that because of the “substantial uncertainties” about the outlines of the program that will eventually emerge from Congress, about half of the Fed officials had not included any assumptions about Trump’s efforts in their economic forecasts.

While most believed Trump’s plans had the potential to boost growth, some said there were also downside risks from a possible adverse economic reaction from Trump’s measures to limit immigration and to increase trade barriers to protect American workers.

On inflation, the minutes showed that some Fed officials worried that if unemployment, currently at a low of 4.7 per cent, fell even further, it could pose a “significant upside risk” of higher inflation.

The Fed’s two goals are to achieve maximum employment and moderate inflation. Unemployment is currently below the Fed’s 4.8 per cent goal, while inflation has remained below the Fed’s two per cent inflation goal for several years.