Federal Reserve officials were unsure about the pace of rate hikes in the coming year due to uncertainty over the Trump administration's fiscal and other economic policies, according to minutes from the Fed's Dec. 13-14 policy meeting released Wednesday.
"Participants emphasized their considerable uncertainty about the timing, size, and composition of any future fiscal and other economic policy initiatives as well as about how those polices might affect aggregate demand and supply," the minutes said, noting that "it was too early to know" what changes in these policies would be implemented and how such changes might alter the U.S. economic outlook.
However, almost all Fed officials indicated that the upside risks to their forecasts for U.S. economic growth had increased "as a result of prospects for more expansionary fiscal policies in coming years".
U.S. President-elect Donald Trump has proposed to boost economic growth by large tax cuts and infrastructure investment, but hasn't yet released many details. It's also unclear whether the Republican-controlled Congress would fully adopt his economic plans.
Fed officials emphasized that "the greater uncertainty about these policies made it more challenging to communicate to the public about the likely path of the federal funds rate", the minutes said.
The Fed in December raised the benchmark short-term interest rate by 25 basis points to a range between 0.5 percent to 0.75 percent, the first rate hike since December 2015, when the central bank lifted rates from near zero.
Fed officials last month predicted that there would be three rate increases in 2017, up from two estimated in September. But market participants doubted whether the central bank would really deliver three rate hikes this year.
"A couple of participants expressed concern that the Committee's communications about a gradual pace of policy firming might be misunderstood as a commitment to only one or two rate hikes per year," the minutes said, emphasizing the need to adjust the policy path as economic conditions evolved. "They pointed to a number of risks that, if realized, might call for a different path of policy than they currently expected," the minutes said. "Moreover, uncertainty regarding fiscal and other economic policies had increased."
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