Fed minutes reveal debate over inflation and Trump

Most Fed policymakers see change to balance sheet policy 'later this year': minutes
Fed minutes reveal debate over inflation and Trump
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06 April, 2017

The group chose to keep signaling that future rate hikes would be gradual but be prepared to respond quickly to changes in the economic outlook.

However, the Fed doesn't believe that Trump will be able to get results this year.

Most of the top Federal Reserve officials said it was likely that the central bank would start to shrink its balance sheet this year, according to minutes of the March policy meeting released Wednesday. The minutes said rate hikes would continue gradually as long as "the economy continued to perform about as expected".

The Fed has been keeping the level of its balance sheet steady at $4.5 trillion, compared with less than $1 trillion before the financial crisis. But financial markets have been closely watching for any Fed signal on the timing of when the Fed would begin reducing the level of its bond holdings by halting its current practice of replacing any maturing bonds. The minutes showed that several Fed officials thought Trump's stimulus plans wouldn't likely begin before next year. Members of the Federal Open Market Committee also said meaningful fiscal stimulus from the Trump administration would not be felt until 2018.

Because shrinking the balance sheet could cause long-term rates to rise and threaten economic expansion. " ... some participants and their business contacts saw downside risks to labor force and economic growth from possible changes to other government policies, such as those affecting immigration and trade".

Elsewhere in the minutes policymakers appeared to see upside risks to the economy while there was still disagreement on how close the Fed was to meeting its 2 percent inflation goal this year. The Fed's dual mandates are to achieve maximum employment and moderate inflation.

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Several members also pushed for explicit recognition of a symmetric inflation target to help anchor inflation around 2% and this change was made in the statement.

The minutes recorded the views of policymakers expressed at a March 14 - 15 meeting, when they voted to raise their benchmark interest rates to head off mounting inflation.

In March, the Fed raised its benchmark interest rate for the second time in a year and said it expects two more rate hikes this year and three more next year. The next meeting is May 2-3.

United States stocks had been solidly higher prior to the 1800 GMT release of the minutes following data that showed strong U.S. private-sector hiring in March, according to payrolls firm ADP.

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