Date
10 December 2018
The Fed is now concerned the economy is so strong that inflation could rise persistently above its 2 percent target. Photo: Reuters
The Fed is now concerned the economy is so strong that inflation could rise persistently above its 2 percent target. Photo: Reuters

Fed officials see rate hike soon amid worries over trade war

Federal Reserve officials discussed raising interest rates soon to counter excessive economic strength but also examined how global trade disputes could batter businesses and households, Reuters reports, citing minutes of the US central bank’s last policy meeting.

The Fed, which released the readout from its July 31-Aug. 1 meeting on Wednesday, has been raising rates gradually since 2015 and is now concerned the economy is so strong that inflation could rise persistently above its 2 percent target.

Fed policymakers left rates unchanged at their last meeting, but their discussion made it clear they are considering another rate hike soon. The Fed has raised rates twice this year and is widely expected to tighten policy again next month.

“Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation,” according to the minutes.

Fed policymakers generally noted that spending by US households and businesses appeared to have “considerable momentum”, according to the minutes.

The officials also generally expected the economy would grow at a fast enough rate to put upward pressure on inflation, which recently has come close to the central bank’s target.

With interest rates rising, many policymakers said the Fed would soon have to stop describing monetary policy as giving a boost to the economy.

At the same time, policymakers held an ample discussion about the risks to the economy from simmering trade tensions.

The Trump administration has raised tariffs on imports from a range of countries, including China and members of the European Union, triggering retaliatory tariffs on US exports.

“All participants pointed to ongoing trade disputes as an important source of uncertainty and risks,” according to the minutes.

Policymakers pointed out that a large prolonged trade dispute could hurt business sentiment, investment spending and employment.

Wide-ranging tariff increases would reduce the purchasing power of US households, according to the minutes.

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RC/CG

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