US central bankers say the time will “soon” be right to once more raise the key lending rate, according to the minutes of the last Federal Reserve meeting released Wednesday.
Monetary policymakers may however wait to see signs that the weak growth recorded early this year was merely temporary, the minutes showed.
Fed officials said planned spending by President Donald Trump’s administration could boost the economy more than currently forecast, although the details and timing of the projects “remain highly uncertain.”
Some central bankers also “expressed concerns” over the Trump administration’s plans for easing bank regulations as this “could increase risks to financial stability,” according to the minutes.
At the May 2-3 meeting, the Fed’s policy-setting Federal Open Market Committee voted unanimously to keep the federal funds rate in a range of 0.75-1.0 percent, just as most analysts had expected, and attributed the tepid GDP growth in the first quarter mostly to “transitory factors.”
Assuming the economy continues to perform as expected, with continued job and wage growth leading to a rebound in consumer spending and business investment, “Most participants judged… it would soon be appropriate” to raise rates again, the minutes stated.
The central bank raised rates in March and December, given steady job creation and some signs of mounting price pressures — and amid the wave of optimism in the early days of Trump’s term, with his promises of tax cuts and big infrastructure spending.
Most analysts expect two more rate increases this year, likely at the next meeting June 13-14, and again in September.
However, the minutes surprisingly cast some doubt on that schedule.
“Members generally judged that it would be prudent to await additional evidence indicating that the recent slowing in the pace of economic activity had been transitory before taking another step” to increase the benchmark interest rate.
At the same time, the central bankers largely discounted the weak first quarter — when GDP expanded by only 0.7 percent, the slowest in three years — as a one-time issue.
They emphasized the continued strong labor market and solid hiring, and noted, for example, that spending on energy slowed due to the mild winter.
Many economists also discounted the weak first quarter as an anomaly frequently seen in the first three months of the year, and continue to see the need for two more Fed rate moves.
Fed officials say the economy also is expected to see a boost from overseas demand for US exports, as “the risks stemming from global economic and financial developments” have “receded further,” the minutes said.
Policymakers also reviewed a staff proposal on how to reduce the size of the Fed’s holdings of Treasury and mortgage-backed securities “in a gradual and predictable manner” so as not to roil financial markets.
The Fed already announced that it expects to begin unwinding its investments — part of the extraordinary “quantitative easing” used during the financial crisis — this year. Discussion will continue at the next meeting on the proposed plan.
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