Policymakers at the Federal Reserve continue to see "considerable uncertainty" about the effects of possible fiscal stimulus from the Trump administration, according to meeting minutes released today.
Policymakers at the Federal Reserve continue to see “considerable uncertainty” about the effects of possible fiscal stimulus from the Trump administration, according to meeting minutes released today. Members of the US central bank also pointed to looming elections in Europe — where a wave of populism has called prevailing trade policy into doubt — as posing near and longer-term economic dangers. The minutes recorded the views of policymakers expressed at a March 14 – 15 meeting, when they voted to raise their benchmark interest rates to head off mounting inflation. The most recent projections from the Federal Open Market Committee, which sets the Fed’s benchmark rates, were for a total of three rate hikes in 2017.
“Participants continued to underscore the considerable uncertainty about the timing and nature of potential changes to fiscal policy,” the minutes said. President Donald Trump arrived in the White House with an agenda pledging corporate tax cuts, infrastructure spending and slashed regulation, but such policies have yet to take shape. Parts of his agenda, such as health care — which has considerable consequences for taxation — face long odds among fractious lawmakers in the majority Republican Party.
“Several participants now anticipated that meaningful fiscal stimulus would likely not begin until 2018,” the minutes said, “and about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections.” The minutes also showed some disagreement over the near-term dangers of inflation, a subject that had divided Fed members in mid-2016.
The release of the minutes came a day after the sudden resignation of FOMC member Jeffrey Lacker — the president of the Richmond Federal Reserve Bank — who admitted to a role in the leak of confidential minutes meetings in 2012.
The development will probably raise the temperature for the Fed, observers said, with hostile lawmakers in Washington threatening to audit the Fed or take measures some critics say could curtail its independence. With the private payrolls firm ADP reporting Wednesday that the economy added another 263,000 net new positions, Fed watchers are looking for another strong official jobs report on Friday to add pressure on the Fed to raise rates as soon as June. Before the release of the minutes, Fed funds futures put the odds of a rate hike in June at more than 63.4 per cent.