USA rate-setters sound more hawkish note at March FOMC, minutes show

Fed sounds the alarm on the damage a trade war could do to the US economy

Minutes stated that officials did not view the tariffs as likely to have a significant effect on the national economic outlook, but deemed retaliatory trade actions and other trade policies-related factors as a weakness for the United States economy.

But another section of those same minutes showed there had been essentially no change in the number of Fed policymakers flagging elevated risks to economic growth.

Fed chairman Jerome Powell said last Friday that the central bank would likely need to keep raising rates to keep inflation under control, but also pledged to stick to a gradual path.

The Fed's target range for its lending rate is now between 1.50 and 1.75 percent, though a few members grew concerned and believed that it would be better to have more proof that inflation was moving towards the central bank's 2 percent target.

Despite the concern over trade policy, the discussions by the Fed's policy-setting Federal Open Market Committee said the economy was expected to grow at a solid pace. Although more tariffs have been announced since then, investors will be parsing the minutes for any detail on why the committee reached that conclusion.

The relationship between the world's two largest economies grew especially strained after the Fed's last meeting, with China rising tariffs on US aluminum exports on March 23.

"Many participants reported that their contacts had taken the previous month's turbulence in stride, although a few participants suggested that financial developments over the intermeeting period highlighted some downside risks associated with still-high valuations for equities or from market volatility more generally", the minutes said.

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Washington set stiff tariffs on many steel and aluminum imports on March 7, which Beijing criticized, saying they would have a "serious impact" on trade.

Some Fed officials did not think our historically low levels of unemployment necessarily mean the U.S.is near full employment. "In addition, all participants expected inflation on a 12-month basis to move up in coming months".

Fed policymakers also said at the meeting that they expected the combination of the tax cuts signed by Trump last year and a bipartisan congressional deal this year to increase federal spending to give economic output "a significant boost" in the next few years.

The Fed's target range for its benchmark lending rate is now between 1.5 and 1.75 per cent.

It is possible that the Fed would do more for the economy if it does not raise rates at all, at least for the time being.

The prevailing objective of the Fed since the Great Recession is that low-interest rates and the purchase of bonds allow businesses and consumers to operate in an environment in which the cost of money is close to zero. A large body of evidence shows the purchasing power of Americans has not increased much in years. The change would indicate that the Fed was no longer trying to boost growth but instead trying to let it run its course without monetary stimulus or even trying to hold growth back.

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