Despite Trump's criticism, the Fed deems it necessary to further increase rates

(Reuters) – Federal Reserve decision makers are largely unanimous on the need to further increase borrowing costs, according to the minutes of their most recent meeting, despite US President Donald Trump's view which interest rate hikes have already been excessive.

All Fed decision-makers have endorsed the central bank's decision in September to raise the key rate from 2% to 2.25%, according to the minutes of the September 25-26 meeting, released on Wednesday.

Members of the Fed's rate-setting committee also "generally expected that further gradual increases" in short-term borrowing costs "would likely be consistent" with the pattern of continued economic expansion, the strength of the labor market and sustained inflation. anticipating, the minutes showed.

"This step-by-step approach would balance the risk of monetary policy tightening too quickly, which could lead to a sharp downturn in the economy and lower inflation than the Committee's objective, to the risk of slowing down too slowly. could lead to inflation that is still higher than the target and could contribute to the accumulation of financial imbalances, "says the minutes.

US equities fell slightly and US Treasury yields edged up as traders continued to bet on further rate hikes. The 10-year Treasury Reference Rate rose 3 basis points to 3.184%. The dollar has also increased.

In August, Trump told Reuters that he was "not thrilled" by Fed Chairman Jerome Powell for raising interest rates. Since then, he has intensified his criticism, saying that the central bank is his "biggest threat". "Loco", "ridiculous" and "too cute".

Although the minutes do not refer to any of Trump's critics, his message of further rate increases suggests that policymakers are not baffled by this.

"For now, the Fed has made it clear that it is focusing on its program despite mounting pressure from the presidential on their rate decisions," said Mike Loewengart, vice president of strategy for the US. Investment at E * Trade.

The broad united front could strengthen expectations. The Central Bank will raise rates for the fourth time this year in December, but the minutes also show that the committee remains divided on the question of how much will be needed to raise rates next year.

Some participants felt that rates should rise sufficiently to moderately limit economic growth, even though two others "indicated that they would not favor a restrictive policy in the absence of obvious signs of overheating. the economy and rising inflation ".

Fed officials are generally expecting rates to rise to 3.1 percent next year and 3.4 percent in 2020, just above their 3 percent estimate of the rate. " long-term, for which borrowing costs do not hinder or stimulate economic growth. Futures dealers linked to the Fed's key interest rate have their rates capped at around 3%.

In the minutes, policymakers stated that the neutral rate estimates would be only one of a factor taken into account in monetary policy decisions.

The US economy has grown faster this year than many economists believe it is possible not to generate higher inflation, the unemployment rate is at its lowest level in decades.

The Fed has raised its interest rates since 2015 and after last month's rate hike, it stopped calling the monetary policy stance "accommodating", which means it was only thinking about the level of interest. interest rates stimulated the economy.

The minutes showed that "almost all" decision makers were in agreement that it was time to remove this language.