Fed officials: Economy is ready for higher rates
Published 12:00 am Thursday, February 22, 2018
WASHINGTON — Robust economic growth has increased the confidence of Federal Reserve officials that the economy is ready for higher interest rates, according to an official account of the central bank’s most recent policymaking meeting in late January.
The Fed did not raise its benchmark interest rate at the meeting on Jan. 30 and 31, but the account reinforced investor expectations the Fed would raise rates at its next meeting in March.
The account said Fed officials have upgraded their economic outlooks since the beginning of the year and listed three main reasons: the strength of recent economic data, accommodative financial conditions and the expected impact of the $1.5 trillion tax cut that took effect in January.
“The effects of recently enacted tax changes — while still uncertain — might be somewhat larger in the near term than previously thought,” said the meeting account, which the Fed published Wednesday after a standard three-week delay.
The Fed is seeking to raise rates gradually to maintain control of inflation without impeding an economic expansion that is nearing the end of its ninth year, one of the longest stretches of continuous economic growth in U.S. history.
A wave of turbulence passed through global equity markets in the days after the Fed’s January meeting. The government reported an unexpected increase in wages, and investors worried the Fed would respond by raising rates a little more quickly. Then Congress passed a plan increasing government spending, tossing more logs onto the fire.
So far, however, Fed officials have treated the stronger economic news as a reason to carry out their plans for gradual rate hikes, rather than as a reason to start raising rates more quickly. Most Fed officials predicted in December the Fed would raise rates three times in 2018.
“If the economy evolves as I anticipate, I believe further increases in interest rates will be appropriate this year and next year, at a pace similar to last year’s,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said this month.
The persistent question mark is inflation.
The Fed aims to keep prices rising at an annual rate of 2 percent.