WASHINGTON—Federal Reserve governors are signaling they are likely to raise rates in 2018.
Federal Open Market Committee (FOMC) members, in minutes released from the January policy-setting meeting, pointed to "accommodative financial conditions, the recently enacted tax legislation, and an improved global economic outlook" as factors likely to support continued economic growth.
The FOMC meets again March 20-21 during which a quarter-point rate hike is a possibility, noted NAFCU Chief Economist and Vice President of Research Curt Long.
FOMC members also noted that inflation would continue to rise as "resource utilization tightened further and as wage pressures became more apparent."
"Minutes from the FOMC's January meeting show committee members grappling with the effects of the tax overhaul and the prospects for inflation," said Long. "The latter continues to fall short of the committee's target, but its recent rise combined with the perception that stronger economic growth and further tightening in the labor market are likely in 2018, had some committee members nervous that an inflation overshoot was a possibility.
"Tax cuts played a part, as well, as some members noted that they had revised higher their assessment of the stimulus's impact," continued Long. "In December, the FOMC predicted three rate hikes for 2018, but the committee seems to be in the mood to top that forecast, so long as inflation continues to strengthen."
Many FOMC participants also reported that labor market conditions were tight in their districts; employers continue to report difficulties filling open positions or retaining staff and unemployment rates remain low, Long said.
During the January meeting, the FOMC declined to raise rates. The federal funds target rate was raised by a quarter-point to a range of 1.25 to 1.5 in December.