Saturday, 15 December, 2018

Federal Reserve policymakers more confident about economy

Federal Reserve policymakers more confident about economy Federal Reserve policymakers more confident about economy
Nellie Chapman | 22 February, 2018, 01:26

Federal Reserve officials are increasingly optimistic about USA economic growth this year, leaving them on course to lift interest rates further.

The economy is building steam after years of anemic growth.

Fed officials noted the economic impact of the new tax law "might be somewhat larger in the near term than previously thought", according to the minutes.

For now, the central bank has penciled in three rate hikes this year, and two more in 2019.

"We debate each word change in the statement - a lot of debate goes into those - and I think "further" is meant to say continuing the current path that we're on", he said in a Bloomberg Television interview with Michael McKee before the minutes were published.

The Fed has also been unloading trillions of dollars of assets that it purchased to lift the economy after the financial crisis a decade ago.

USA stocks jumped after the minutes were released, but sank again as the afternoon continued, reflecting continuing uncertainty about the bank's future course. However, that was befor strong January employment report was released, spooking markets due to the fear the Fed will have to raise rates faster to head off inflation.

The minutes showed that both voting members and the wider group of policymakers had upgraded their forecasts for the economic outlook since December.

The strengthening "increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate", pointing toward "further gradual increases".

Since Fed officials last met in January, data showed wages rising faster than forecast with the unemployment rate holding at 4.1 percent.

Since the January meeting US stocks have been volatile, although Fed officials have played down the impact of a recent sell-off given how high the stock market has risen.

Still, Fed officials noted "considerable uncertainty" remained around a number of federal government policies that could affect the economy. "The discussion about inflation eventually recovering to 2 percent.pointed to more optimism regarding the outlook", said Aaron Kohli, rates strategist at BMO Capital Markets. The minutes read, in part, "With regard to how firms might use part of their tax savings to boost compensation, a few participants suggested that such a boost could be in the form of one-time bonuses or variable pay rather than a permanent increase in wage structures". Many economists now expect four moves in 2018.

The US Federal Reserve is preparing for stronger-than-expected economic growth this year, a view that boosts the case for higher interest rates.

"It was noted that the pace of wage gains might not increase appreciably if productivity growth remains low", the minutes said.

Markets were paying close attention for any hints that policy will be different under new Fed Chair Jerome Powell, who replaced Janet Yellen at the behest of President Donald Trump.

The next FOMC meeting is scheduled for March, when the Fed is widely expected to announce another rate hike, this one likely up to a target rate of 1.5 percent to 1.75 percent.