Markets

Fed Minutes: More Interest Rate Hikes Incoming

Fed Minutes: More Interest Rate Hikes Incoming

Some Fed officials noted that they'd reviewed data "suggesting that the effects of recently enacted tax changes - while still uncertain - might be somewhat larger in the near term than previously thought".

According to the minutes, the Federal Reserve officials in January had revised their economic projections upwards following their December meeting, noting increased consumer spending and confidence.

Despite the expectations for an economic boost from the December tax cuts, the minutes stressed that the impact remains uncertain. According to implied probabilities on Bloomberg, traders see a 100% chance that the first hike would come at the March 20-21 meeting, when Fed Chairman Jerome Powell holds his first press conference and new economic forecasts are released.

Participants also discussed numerous uncertainties about the outlook, the minutes showed.

The funding bill is more generous than many economists anticipated, and they predict it could boost USA economic growth in 2018 and '19 by around 0.3 percentage points each year - roughly the same size increase expected from the $1.5 trillion tax cut signed into law by President Donald Trump in December.

The Fed did not increase the key interest rate at last month's meeting, and indicated three rate kes are expected this year.

U.S. central bankers said the recent tax cuts could juice the economy more than expected in the near term, meaning further interest rate hikes likely will be needed, according to meeting minutes released Wednesday. That would likely prompt Fed officials to raise rates a little more than they otherwise would, the economists say.




Almost all FOMC members said they expect inflation to gradually move to the Fed's 2% target, the level it considers healthy for the economy.

If it looks like the tax cut is likely to generate more investment and hiring - raising the economy's capacity to produce goods and services - the Fed can tolerate faster growth without accelerating rate increases.

Analysts expect many more companies to use most of their tax savings to buy back their own stock or to increase their dividends.

Investors fear that low unemployment, increasing USA growth and rising wages will spur the Fed to raise interest rates at a quicker pace, which would boost the cost of borrowing money.

Participants in the policy-setting Federal Open Market Committee (FOMC) noted the tax cuts and the improved global economic outlook as factors supporting U.S. growth this year, which they see as stronger than previously expected.

The meeting was the last chaired by Janet Yellen, who carefully guided the Fed through its first interest rate hikes after the crisis. UBS also added one rate increase to its forecast each year, now expecting the Fed to raise rates four times this year and three next year.


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