Friday, March 29, 2024 | Ramadan 18, 1445 H
clear sky
weather
OMAN
25°C / 25°C
EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Fed officials suggest rates likely to increase soon

Fed-officials
Fed-officials
minus
plus

WASHINGTON: Federal Reserve officials discussed raising interest rates soon to counter excessive economic strength but also examined how global trade disputes could batter businesses and households, minutes of the US central bank’s last policy meeting showed.


The Fed, which released the readout from its July 31-August 1 meeting on Wednesday, has been raising rates gradually since 2015 and is now concerned the economy is so strong that inflation could rise persistently above its 2 per cent target.


Fed policymakers left rates unchanged at their last meeting, but their discussion made it clear they are considering another rate hike soon. The Fed has raised rates twice this year and is widely expected to tighten policy again next month.


“Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation,” according to the minutes.


Fed policymakers generally noted that spending by US households and businesses appeared to have “considerable momentum,” according to the minutes.


“I read these as further confirmation that the Fed is firmly in its tightening mode and is very unlikely to be deterred from that path,” said Jeff Greenberg, an economist at J P Morgan Private Bank,


US stocks fell modestly after the minutes were published while the dollar .DXY weakened against a basket of currencies.


Fed officials also generally expected the economy would grow at a fast enough rate to put upward pressure on inflation, which recently has come close to the central bank’s target. With interest rates rising, many policymakers said the Fed would soon have to stop describing monetary policy as giving a boost to the economy.


TOUGH SITUATION: At the same time, policymakers held an ample discussion about the risks to the economy from simmering trade tensions. The Trump administration has raised tariffs on imports from a range of countries, including China and members of the European Union, triggering retaliatory tariffs on US exports.


The discussion outlined the tough situation the Fed could find itself in should the trade disputes worsen, with US businesses potentially needing to scale back hiring and consumers possibly facing higher prices on imports. The Fed is tasked by law with fostering full employment and steady prices.


Policymakers pointed out that a large prolonged trade dispute could hurt business sentiment, investment spending and employment. Wide-ranging tariff increases would reduce the purchasing power of US households, according to the minutes.


The minutes also gave an indication the Fed was preparing to debate once again how best to implement its monetary policy, including what to do with its swollen balance sheet.


The Fed went on a bond-buying spree to fight the 2007-2009 recession and has yet to decide how many bonds it wants to hold over the long term. Fed Chairman Jerome Powell said a discussion on the operating framework of monetary policy would likely take place “in the fall,” according to the minutes. — Reuters


SHARE ARTICLE
arrow up
home icon