Federal Reserve officials leaned toward a slightly faster pace of tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, according to minutes released Wednesday.
“A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,” the Federal Open Market Committee said in the records of its March 20-21 meeting.
At the gathering, the first under Chairman Jerome Powell, Fed officials lifted interest rates by a quarter percentage point and mostly penciled in two or three more moves this year. Even with the improved outlook, a “strong majority” of Fed officials voiced concern that a trade war would harm the economy, and some policy makers said the recent turbulence in financial markets highlighted risks to growth, the minutes showed.
“Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook,” the minutes said. “But a strong majority of participants viewed the prospect of retaliatory trade actions by other countries” as a downside risk.
Investors saw about a 78 percent chance that interest rates will be higher after the June meeting, according to federal funds futures prices at 12:40 p.m. New York time. The central bank’s current target is a range of 1.5 percent to 1.75 percent, after the March hike.
U.S. central bankers saw costs and benefits to an economy operating “well above potential,” ranging from a faster return of inflation to target and an increase in labor force participation. “On the other hand, an overheated economy could result in significant inflation pressures or lead to financial instability,” the minutes said.
The minutes showed participants discussed the possibility of revising statement language “at some point” to acknowledge that monetary policy “would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.”
Officials gathered to discuss policy with more powerful cross- currents than usual buffeting the U.S. economy.