The Fed's minutes could provide clues to the limits of the rate hike

A discussion of how US interest rates should go in this tightening cycle could feature prominently in the publication of minutes later this week of the Federal Reserve meeting from June 12 to 13 . the risks posed by growing conflict between the United States and major trading partners, a stronger dollar and the flattened yield curve, concerns that could dampen expectations of accelerating tariff increases. The minutes will be published at 2 pm President Jerome Powell, in his post-meeting press conference, threw cold water on the idea that policymakers can accurately gauge the level at which rates would have a neutral impact on the economy. Economy – a key to deciding when to stop the hike. According to Joseph Song, senior economist at Bank of America Corp., this would not have stopped the debate among policy makers

"It's still something they'll try to evaluate , and again something important for the policy path, "said Song." Knowing that this range of estimates is significant, and if the Fed believes that it can exceed that level. "

With unemployment falling to the lowest level since 2000 and inflation returning to their target of 2%, the benchmark federal funds rate has reached 1.75% to 2% and published new forecasts at their meeting last month.

In these forecasts, the median projection of the Federal Open Market Committee for the number of rate hikes in 2018 the move was driven by just an unidentified official changing his projection. 39, estimate for the neutral was unchanged at 2.9%

L The minutes "might take a bit of hawkish projections from June," Song said.

If the Fed moves once or twice more in 2018 could hinge on the actual readings of inflation and inflation expectations. The Fed's last two statements have added an additional reference to the central bank's "symmetrical" inflation target, an addition many see as a sign that policymakers would tolerate inflation slightly above their target. percent in May. Gus Faucher, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said the meeting's results could provide a signal on how Fed officials would react to higher inflation.

A big point in highlighting the symmetry of their inflation target, "said Faucher." How ready are they for letting inflation develop? When they start to worry. "

Fed observers are also eager to get more information on how officials are assessing the impact of increasing tensions on trade, driven by the imposition of new tariffs and the subsequent reactions of China and the European Union and other countries

"The baseline has not been much affected – the impact on US growth, "Faucher said." This could change as we get more tangible tariffs and retaliation from trading partners. "

Since the FOMC meeting, several officials have stated that Threat of an ever deeper conflict was affecting investment and hiring. US business decisions. "Changes in trade policy could cause us to question the prospects," he said. Powell to Portugal on June 20th

. A stronger dollar could also cause decision makers to reconsider their forecasts. The Bloomberg Dollar Spot Index, which tracks the greenback versus a basket of major world currencies, has appreciated about 6% since mid-April.

The strong dollar can dampen inflation by making imports cheaper. It can also dampen growth by hurting exports, an impact perceived by economists as being more persistent and more consequential. "It's something that would postpone any expectation of faster rate hikes," said Luke Tilley, chief economist of fund manager Wilmington Trust. Corp. and former Philadelphia Fed staff member