Many officials of the US Federal Reserve said the central bank could be forced to lift rates higher than expected if Congress passed conomy-boosting tax cuts next year, according to minutes of the Fed’s final policy meeting of 2016.
Almost all Fed officials meeting on December 13-14 said the risks of growth surpassing their forecasts had grown because of the possibility of more “expansionary” fiscal policy under president-elect Donald Trump and the Republican-controlled Congress.
However policymakers also stressed that it was too soon to jump to firm conclusions about what fiscal policy would actually look like. “Participants agreed that it was too early to know what changes in these policies would be implemented and how such changes might affect the economic outlook,” the minutes to the meeting said.
The Fed on December 14 raised short-term rates for only the second time in a decade and predicted a quicker speed of tightening this year compared with the one-a-year pace in 2015 and 2016. Speaking after the meeting, Janet Yellen, the Fed chair, said the Fed was existing in a “cloud of uncertainty” as it weighs the possibility of tax and spending changes under the new Congress and administration.
Minutes of the meeting revealed on Wednesday show just how unclear the path of monetary policy is given Fed officials do not know what details will emerge from negotiations in Congress over the coming months. The possibility of a further surge in the dollar also re-emerged as an important risk factor.