Fed officials discussed hiking rates to 'restrictive' level

Daniel Fowler
October 19, 2018

Late last week, Treasury Secretary Steven Mnuchin said that despite Trump's attacks on the Fed, the president respects the central bank's independence.

President Donald Trump laid the blame firmly at the Fed's door - describing it as "crazy" for raising rates, an action which tends to strengthen the dollar.

"My biggest threat is the Fed, because the Fed is raising rates too fast", he told FOX Business Network's Trish Regan.

In the minutes it says "a couple" of policymakers stated that they would not be in favour of adopting a restrictive policy stance without "clear signs of an overheating economy".

Instead, some members of the committee believed that the Fed would need to impose "modestly restrictive" conditions on the economy, the minutes show.

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The meeting took place three weeks ago - before last week's global market meltdown that saw stocks and bond prices hit sharply amid jitters over rising U.S. rates and the USA trade war with China. Analysts have pointed to rising interest rates, which can make stocks a less attractive investment.

But, amid brisk American expansion, some Fed policymakers also warned of looming dangers to the world economy, such as the potential for a strengthening United States dollar and possible contagion from sputtering emerging markets, according to minutes from the Fed's most recent meeting three weeks ago.

Janet Yellen, former chairwoman of the central bank, has warned that the president's attacks could undermine financial stability. Based on current economic forecasts, the Fed expects to boost rates once more in 2018, followed by three rate hikes in 2019. The display of solidarity raises the prospect of a fourth rate-hike this year in December. Traders of futures contracts tied to the Fed's policy rate see rates topping out at about 3 percent.

The minutes showed that officials were generally pleased with how the economy is unfolding this year, with strong job growth and inflation hovering near the Fed's 2 percent goal. Following the rate increase in September, Trump said he was "not happy" with the decision.

They also noted that some businesses said they were investing less in the energy sector due to the imposition of import tariffs on steel and aluminum, part of an array of trade policy conflicts the Trump administration has pursued.

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