By Canadian Press

Fed officials: Stronger economy boosts chance for rate hikes

Feb 21, 2018 | 1:30 PM

WASHINGTON — Federal Reserve officials at their January meeting believed that a brightening global economic picture and the effects of recently passed tax cuts had raised the prospect for solid growth and continued interest rate increases.

The minutes of the Fed’s Jan. 30-31 discussions showed that the officials were more optimistic about the economy than they had been in December. They noted a stronger U.S. and global economy as well as expectations that the Republican tax cuts enacted in December would boost growth.

The minutes said “a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.”

The Fed held rates steady at the January meeting, which was the last to be led by Janet Yellen before her term as chair ended this month and she was succeeded by Jerome Powell. Last month’s meeting preceded the stock market plunge in early February and the budget deal in Congress that will boost spending on military and domestic programs by an additional $300 billion over two years.

Some economists have suggested that the market turbulence and the prospect of higher federal debt — and higher bond yields — might make the Fed more cautious about raising short-term rates.

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But others say they think the central bank will discount those developments and focus instead on the stimulative effects of the Republicans’ $1.5 trillion tax cut and the additional spending from the budget deal. The possibility of higher inflation resulting from the tax cuts and spending increases could even make the Fed likelier to tighten credit

The Fed raised rates three times in 2017 and signalled at its December meeting that it expected to do so three more times in 2018. But many analysts now think the Fed may accelerate its rate increases and boost rates four times this year. That would likely cause consumer rates such as mortgage rates to rise more quickly.

The Fed’s benchmark rate remains at a still-low 1.25 per cent to 1.5 per cent.

Investors are awaiting the release Friday of the Fed’s twice-a-year monetary policy report to Congress for further clues to the likely path for rate increases. They will also be listening next week when Powell testifies on Capitol Hill about the report. It will be Powell’s first public appearance since he assumed the Fed’s chairmanship early this month.

Powell, who has been a Fed board member since 2012, was tapped by President Donald Trump to be the next Fed chairman after the president decided not to offer Yellen a second term.

Powell is expected to continue the same gradual approach to raising rates that Yellen followed.

Martin Crutsinger, The Associated Press