Despite Trump criticism, Fed sees need for more rate hikes

Andrew Cummings
October 19, 2018

Central bank officials were unified in voting last month to boost rates by a quarter point, the Fed's account of its September policy meeting shows.

Louis President James Bullard is proposing a new monetary policy rule - effectively the Bullard rule - that updates popular policy guidelines such as the Taylor Rule and concludes there's no reason to raise interest rates further.

The central bank expects to raise its key lending rate again in December - its ninth increase since 2015 - and three more times next year.

"Participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term", the Fed's minutes said.

U.S. stocks closed slightly lower and U.S. Treasury yields gained a bit as traders continued to bet on further rate hikes ahead.

Trump said he doesn't speak with Chairman Jerome Powell because of the Fed's political independence but said.

This would move United States interest rates slightly above what policymakers say is "neutral" - that is, neither slowing nor speeding the economy - but some participants said the Fed may need to go even further than that.

Compared to the minutes of Fed's previous meeting held in August, the September minutes appeared to show less discussion around the prospects that a recession might be lurking around the corner. The minutes noted that the tax cuts Trump had pushed through Congress late last year along with the spending increases Congress approved at the beginning of this year were boosting economic activity. Rather, some of the central bankers appeared to see some indications of a stronger USA economy.

A few participants expected rates would need to rise enough to modestly restrain economic growth, even as two others "indicated that they would not favor adopting a restrictive policy stance in the absence of clear signs of an overheating economy and rising inflation".

Still, policymakers noted that the relative weakness of the global economy could create "potential for further strengthening of the USA dollar", a factor that could weigh on US exports. He's argued that the USA economy has been saddled with persistently low growth, so there is little need to raise interest rates much.

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