As Wall Street Boosts Rate Hike Bets, Fed Doubts Remain

Andrew Cummings
February 22, 2018

The minutes from the January meeting of the Federal Open Market Committee were released on Wednesday, showing Federal Reserve officials forecasting increased economic growth and inflation.

Quarles, who was named to the central bank's board by President Donald Trump, said recently enacted tax changes and bipartisan budget deals could help sustain the economy's expansion by increasing demand and spurring business investment. Most economists and market analysts now expect the economy to grow 2.6 per cent or higher this year.

It added that recent information on inflation received by voting members "along with prospects for a continued solid pace of economic activity provided support for the view that inflation.would likely move up in 2018".

The January job report included a 10-year record in wage gains after months of only tepid increases, further boosting the sense on markets that the central bank would have to be more aggressive.

Investors are looking to the release later Wednesday of minutes of the Fed's January policy-setting meeting for guidance.

The minutes provide insights into the thinking of Fed officials and clues about the path of interest rates.

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

Harker said he is open to a rethink of the Fed's policy framework, but that he is in "no rush" to adopt, say, a higher inflation target or a almost untested strategy, favored by a few of his colleagues, that would allow inflation to run hot for a period of time to make up for a period of excessively low inflation. Fed officials also speculated on whether the tax cuts would translate into higher compensation for employees.

As a result, the "stronger outlook for economic growth raised the likelihood that further gradual upward policy firming would be appropriate".

Following the meeting, the United States stock market hit bumpy waters on the expectation that the faster inflation growth might lead the Fed to raise interest rates at faster pace.

Most market players believe Fed policymakers will decide on an additional rate hike at their next meeting in March.

The Fed's benchmark rate remains at a still-low 1.25 to 1.5 percent.

Soon, marquee Fed speeches, especially congressional testimony by new Fed chair Jerome Powell next month, will set the tone for stocks and bonds.

Powell is expected to continue the same gradual approach to raising rates that Yellen followed.

Other reports by iNewsToday