ARLINGTON, Va.—Although inflation has remained below the Fed’s target, solid economic growth and continued strengthening in the labor market were the primary reasons Federal Open Market Committee (FOMC) members voted to raise the Federal Funds target rate by a quarter-point to a range of 1.25 to 1.5%, according to December meeting minutes recently released.
"The FOMC minutes indicate broad agreement among committee members to raise rates last month, but some friction about the path forward," noted NAFCU Chief Economist Curt Long. "This was heightened by differing views on the potential impact of tax cuts, but more so on inflation. Readings on price growth have been low despite strong job gains, a conundrum that Fed officials have minimized to a degree. But if economic growth and inflation continue to diverge, it could become more challenging for incoming Fed Chair (Jerome) Powell to build a consensus around three additional rate hikes in 2018."
According to minutes for the FOMC's Dec. 12-13 meeting, recent hurricanes had affected economic activity, unemployment and inflation, but "had not materially altered the outlook for the national economy," Long said.
The Republican tax reform package had not yet been passed or signed into law at the time of the meeting, but FOMC members expected "proposed cuts in personal taxes to provide some boost to consumer spending" and "the proposed changes in business taxes … would likely provide a modest boost to capital spending," Long noted.
The committee also discussed the financial markets and accommodative conditions including low interest rates, narrow credit spreads and easier terms for lending to risky borrowers. Some members expressed concern that the financial system's current conditions could "pose risks to financial stability," Long explained.
Also during the December meeting, the committee revised its projections to three quarter-point rate hikes in 2018 and two or three in 2019.
The FOMC's next meeting is Jan. 30-31.