Published: Thu, July 06, 2017
Markets | By Erika Turner

Fed minutes suggest increasing tensions on inflation shortfall

Fed minutes suggest increasing tensions on inflation shortfall

USA stock index futures pointed to a mixed open on Wednesday as traders awaited the release of the Federal Reserve's latest meeting minutes. Several committee members preferred to announce a start to the process within a couple of months, while others argued for delaying the decision until later in the year, to continue to judge the economy's progress. A few committee members who supported the June increase "indicated that they were less comfortable" with the forecasts for additional hikes through the end of next year because of concerns that inflation would remain below the Fed's 2% annual target, the minutes said. In fact, the minutes noted, financial conditions have actually eased even as the Fed tightens its interest rates - the opposite of what rate increases are theoretically supposed to do. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments. The Fed hiked by 25 basis points, putting its target rate at 1% to 1.25%.

The Fed had signaled earlier this year that it planned to end the policy of reinvesting the proceeds from maturing debt in yet more bonds, which could have a similar effect to increasing interest rates.

Fed officials say their forecasts have been only modestly affected by the new administration's pledges to cut taxes, reduce regulation and increase spending on infrastructure - measures that, almost six months into Trump's presidency, have yet to be enacted.

The strengthening job market left majority comfortable with raising a key short-term rate last month.

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Members of the Federal Open Market Committee - the Fed's rate-setting panel - "generally reiterated" their support for continuing to gradually raise rates, according to the minutes. But Ms. Yellen downplayed the extent of the Fed's concerns at a news conference after the Fed's June meeting.

"But the minutes might show that there's more disagreement about this view than the Fed leadership expresses in public".

Yellen said last month that asset valuations look "somewhat rich" using traditional metrics like price-earnings ratios.

The Federal Reserve is figuring out when to start unloading much of its $4.5 trillion in bond holdings - a major turning point for an economy still healing from the 2008 financial crisis. The reductions would begin this year "provided that the economy evolves broadly" as Fed officials are forecasting, she said.

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