The Fed plans to continue raising rates, ending years of stimulus

"Some participants expressed concern that a prolonged period beyond the potential of the economy could lead to increased inflationary pressures or financial imbalances that could lead to a significant economic slowdown," the report said. communicated.

The Fed raised its federal funds benchmark rate at the June meeting by a quarter of a percentage point to between 1.75% and 2%, the second rate increase this year . Most officials have written at least four rate increases this year, up from three rate increases published in March.

Last month's discussions showed that recent forces in the economy have moved the Fed to such an extent that it may soon be looking to cool growth.

"Participants generally felt that … it would probably be appropriate to continue to gradually raise the target rate for the federal funds rate to a level that was or higher than their estimates of their longer-term level. 39, here 2019 or 2020, "according to minutes published Thursday.

The minutes have framed the big questions shaping policy over the next few years: Public servants must determine the neutral framework for the federal funds rate – the level that neither stimulates nor slows growth – now that they expect the economy to grow faster than what is viable in the long run. Then they have to decide how much to push the rates above neutrality to slow down growth and prevent overheating of the economy.

In June, the authorities dropped the wording of their postmeeting statement stating that the Fed would remain below the neutral bar. A number of Fed officials have stated that with future rate increases, it would soon be necessary to change the additional wording in the statement that describes monetary policy as "accommodative", or stimulating growth, according to the minutes.

The minutes also reveal a growing uneasiness about how trade policy could curb business investment and weaken economic growth relative to the authorities' forecasts for a sustained recovery in investment, demand and growth. and production this year and next year.

President

Donald Trump

is raising tariffs and other penalties against major trading partners, which could fuel uncertainty among US companies that rely on suppliers and global markets for their goods and services. services. A new tariff cycle against China, for example, should come into effect on Friday.

A slowdown in trade could hurt corporate confidence, weigh on financial markets and reverse a recent synchronized recovery in global growth. According to the minutes, some company contacts have reduced or shelved plans for new investments in the face of uncertain political changes. "Most participants noted that the uncertainties and risks associated with trade policy have intensified, could have negative effects on corporate morale and investment spending," the report said.

Contacts in the steel and aluminum industries, where the United States has already imposed tariffs, have not resulted in new investments to increase domestic production capacity, officials said at the June meeting.

Officials pointed to other international risks to growth, including the turmoil that hit some emerging markets as the dollar rose. strengthens and political unrest that could weigh on the sentiment of investment in Europe.

However, concerns about trade and a potential weakening of global growth are not not to have shaken the Fed from its perspective that more rate increases will be needed to keep the economy on a level playing field.

why? The tax cuts and increases in government spending approved at the end of last year and earlier this year are expected to spur growth and bring the unemployment rate down to half-lows. century. The unemployment rate fell to 3.8% in May, its lowest level in 18 years. It has not been lower since 1969.

Most public servants still believe in a framework that sees an inverse relationship between unemployment and inflation. If the unemployment rate falls faster, public servants will likely be more sensitive to the potential for accelerating inflation.

Some officials at the June meeting said that they believed that it is still possible that the unemployment rate underestimates the labor market. potential for people who do not seek employment to return to employment, according to the minutes.

Fed officials first discussed in March the prospect of a monetary policy ranging from stimulating growth to the possible restriction of growth, and the minutes published on Thursday show that the conversation has progressed.

The June projections of officials show that the fed funds rate should stabilize in the long term between 2.75% and 3%, an approximation of neutral.

Some officials said that they are not trying to raise rates to a level that would calm the economy because they do not want to push short-term rates higher than the rates long-term rate, what's called an inversion However, officials looked at the research done by staff at the June meeting, which gave reasons why the shape of the yield curve might be less significant now . For example, long-term returns could be depressed by recent bond-buying campaigns launched by the Fed and other major central banks.

"Some participants noted that these factors might temper the reliability of the slope of the yield curve of future economic activity," said the minutes

. Write to Nick Timiraos to [email protected]