Fed Minutes Show a Divided Central Bank on Trump and Inflation

Federal Reserve officials last month struggled to come to grips with two big uncertainties facing the U.S. economy — whether it would be safe to let inflation rise faster for a while and how to assess the impact of President Donald Trump’s ambitious economic stimulus plans.

Minutes of the Fed’s discussion at their March meeting released Wednesday showed near-unanimous support for the quarter-point increase in its key policy rate, the second rate hike in three months. But there was less agreement over the issues of inflation and Trump’s economic plans.



The group decided to keep signaling that future rate hikes would be gradual but be prepared to respond quickly to changes in the economic outlook. Many analysts believe the Fed will hold rates steady at the May meeting.

The minutes also showed that Fed officials had a briefing from staff over the central bank’s massive $4.5 trillion balance sheet, which was quadrupled during the financial crisis and its aftermath as the central bank engaged in successive rounds of bond purchases as a way to lower long-term interest rates and give the weak economy a boost.

The minutes said that Fed officials agreed that if the economy continued to perform as expected that “a change in the committee’s reinvestment policy would likely be appropriate later this year.”

Currently, the Fed has been keeping the level of the balance sheet steady at $4.5 trillion. But financial markets have been closely watching for any Fed signal on the timing of when the Fed would begin reducing the level of its bond holdings by halting its current practice of replacing any maturing bonds. The minutes indicated that this change could be announced later this year.

via Washington Post

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza