Federal Reserve officials focused on the impact of potential fiscal stimulus during their December policy meeting, with many starting to worry that the central bank might eventually be forced to quicken the pace of interest-rate increases to head off higher inflation.
Almost all the participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years,” read the minutes of the Dec. 13-14 meeting of the Federal Open Market Committee, released Wednesday in Washington.
Despite growing attention to the risks of increased government spending and tax cuts spurring faster growth than currently forecast, most on the committee reiterated that a “gradual” pace of rate hikes over the coming years would likely remain appropriate.
“There’s nothing here to radically change our view of where the Fed is likely to go. I still think the most reasonable base case for the next rate hike is June,” said Dean Maki, chief economist at Point72 Asset Management LP in Stamford, Connecticut.
Traders see a rate hike by June as highly likely, according to prices of federal funds futures, which were little changed after the minutes were released.
The S&P 500 Index extended gains and the Bloomberg Dollar Index pared some of the day’s losses. Yields on 10-year Treasuries were little changed at 2.45 percent.
The minutes of the session, at which officials raised their benchmark lending rate by a quarter percentage point, showed that uncertainties over future fiscal policies weighed heavily in their discussion of the economy and the future path of monetary policy.
President-elect Donald Trump promised higher spending on infrastructure, tax cuts and regulatory reform during his campaign, but has offered few new details of his policy goals since winning the Nov. 8 election. His inauguration is set for Jan. 20.
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