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Fed expects to maintain growth rates, ending years of stimulus

WASHINGTON-Federal Reserve officials at their meeting last month said they could raise interest rates over the next year to a level that no longer seeks to stimulate growth, formally ending a long post-crisis chapter in the one that the bank unleashed unprecedented stimulus campaigns.

In a sign of the changing fortunes of the economy, officials intensified their discussions on how to manage rates if growth accelerates so rapidly that bubbles or unsustainable price pressures arise, according to the minutes of the Fed meeting. June 12 and 13. Thursday

"Some participants expressed concern that a prolonged period in which the economy operated beyond the potential could lead to greater inflationary pressures or financial imbalances that could eventually lead to a significant economic slowdown," the minutes say.

The Fed raised its benchmark rate of federal funds at the June meeting by a quarter percentage point to a range between 1.75% and 2%, the second increase of this type this year. Most officials recorded a total of at least four rate increases this year, up from three rate increases in forecasts released in March.

Last month's discussions reflected how the recent strength of the economy led the Fed to a point soon could try to cool growth.

"In general, participants judged that … it would probably be appropriate to continue to gradually raise the target rate for the federal funds rate to a level that was at or above their estimates of their longer-term level by 2019 or 2020, "According to the minutes published on Thursday.

The minutes framed the big questions that shape the policy in the coming years: officials must determine the neutral environment for the federal funds rate -the level that neither stimulates nor slows growth- now that we expect the economy to grow more fast what is sustainable in the long term. Then, they must decide how much to push rates above neutral to slow growth and prevent the economy from overheating.

In June, officials removed language from their subsequent statement that for years signaled the Fed's view that rates would remain below the neutral level. Several Fed officials said that with future rate increases, it would soon be necessary to modify the additional language in the statement describing the monetary policy as "accommodative" or stimulating growth, according to the minutes.

The minutes also reveal a growing concern about how trade policy could curb business investment and weaken economic growth in relation to officials' forecasts of a sustained increase in investment, demand and production this year and the next.


Donald Trump

It is in the process of increasing tariffs and other sanctions against major trading partners, which could fuel uncertainty among US companies. UU They depend on suppliers and global markets for their products and services. A new round of tariffs against China, for example, will take effect on Friday.

A slowdown in trade could hamper business confidence, affect financial markets and reverse a recent synchronized rebound in global growth. According to most participants, the uncertainty and risks associated with trade policy had intensified and they were worried about the possibility of such uncertainty and risks. could have negative effects on business sentiment and investment spending, "the minutes said.

Contacts in the steel and aluminum industries, where the United States has already imposed tariffs, have not led to" new investments. " "to boost domestic production capacity, officials said at the June meeting." [19659003] Officials pointed to other international risks to growth, including the turbulence that has plagued some emerging markets as the dollar strengthens and strengthens. the political turmoil that could weigh on the sentiment of investment in Europe.

Still, concerns about trade and a potential weakening in global growth do not seem to have shaken the Fed from its point of view that more will be needed. rate increases to keep the economy in balance.

Fiscal policy is one reason why. The increase in public spending approved at the end of last year and at the beginning of this year will stimulate growth and bring the unemployment rate down to half a century. The unemployment rate fell to 3.8% in May, matching its lowest level in 18 years. It has not been less since 1969.

Most officials still believe in a framework that sees an inverse relationship between unemployment and inflation. If the unemployment rate falls faster, officials will probably be more attentive to the potential for accelerating inflation.

Some officials at the June meeting said they believe it is still possible for the unemployment rate to underestimate the level of slack in the labor market because of the potential of people who are not looking for work to return to employment, according to the minutes .

Fed officials discussed for the first time in March the prospect of monetary policy shifting from stimulating growth to restricting growth, and minutes released Thursday show that the conversation has moved forward.

June officials' projections show that most expect the federal funds rate to be long-term between 2.75% and 3%, a neutral approximation.

Some officials have said they do not seek to raise rates to a level that attempts to cool the economy because they do not want to boost short-term rates more than long-term rates, a so-called reversal of the yield curve that has typically preceded to a recession for a year or so.

But officials reviewed staff research at the June meeting that offered reasons why the yield curve may now be less significant. For example, long-term yields could be depressed by the recent bond purchase campaigns unleashed by the Federal Reserve and other major central banks.

"Some participants pointed out that such factors could temper the reliability of the slope of the yield curve as an indicator of future economic activity," the minutes said.

Write to Nick Timiraos at nick.timiraos@wsj.com


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