US Fed could go ‘in either direction’ on interest rates: minutes
Policymakers at the Fed said the interest rates could ‘shift in either direction,’ implying a rate cut was possible (Brendan Smialowski)
Washington (AFP) – Federal Reserve members are split between optimism and caution, with some saying an interest rate hike may be still appropriate later this year but others believing they should stand pat, or even cut rates, according to the minutes of last month’s policy meeting Wednesday.
Rather than providing a clear course, policymakers signaled their path could “shift in either direction” — raising the possibility of a rate cut — though some central bankers felt raising rates “modestly” later in 2019 could be appropriate if the US economy continues its current expansion.
The Fed has not cut the benchmark lending rate in more than a decade, when it slashed rates to zero during the global financial crisis, but increased it four times last year, the final time in December, before abruptly and clearly calling a pause to any more hikes.
Amid a global economic slowdown and President Donald Trump’s seemingly non-stop trade confrontations with other major economies, the mix of views showed policymakers see the economy as healthy but liable to be knocked off course.
The Fed’s caution came amid signs of a US slowdown in the first quarter, due especially to sagging consumption, as well as fears of “significant negative effects” from trade tensions and international developments such as Brexit.
They also cited “disappointing” news on global growth and the fact that the US economy had gotten less of a boost from fiscal stimulus than they had previously anticipated.
Some policymakers also pointed to the changes in the so-called yield curve — which measures the spread between short- and longer-term Treasury bond rates — saying it “could portend economic weakening.”
– High debt, weak spending –
While noting that inflation remained tame, Fed officials pointed to the high level of indebtedness among US corporations as an economic hazard.
But most believed weakness in consumer spending — a central driver of the US economy — would not last “beyond the first quarter.”
Trump recently called on the central bank to cut rates, continuing his unabated jawboning of the central bank, which he has attacked as “crazy” and a threat to the US economy.
After raising rates four times in 2018, the Fed last month slashed its forecast for the number of rate increases expected this year to zero.
The pause has cheered markets and the International Monetary Fund this week cited it as one reason global economic growth may show resilience into 2020.
But Ian Shepherdson of Pantheon Macroeconomics said the minutes showed the Fed would not necessarily be “patient forever.”
“They are happy to be seen as ‘patient’ for now, but they are cognizant of upside risks to both growth and inflation,” he wrote in a note to clients.
Inflation has remained tame, even amid record low unemployment, but economists say it could ignite if American wages begin to accelerate.
Wall Street was largely unmoved by the news, with the benchmark Dow Jones Industrial Average eking out a small gain.
The central bank’s rate-setting Federal Open Market Committee is due to hold its next two-day meeting on April 30 and May 1.
Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.