Federal Reserve policymakers more confident about economy

Federal Reserve policymakers more confident about economy

Investors were reacting to data, including wage increases, that suggested inflation might be stronger than in recent years, prompting the Fed to raise rates more quickly.

Investors will be closely watching Fed Chairman Jerome Powell's first appearance on Capitol Hill next week, and then the Fed's March meeting, for clues about whether even faster interest-rate hikes are in the works.

The minutes of the Fed's late January meeting, made public Wednesday, showed an even rosier view of the economy than officials held at the end of previous year.

The minutes showed there was more nuance to the discussion.

Investors are looking to the release later Wednesday of minutes of the Fed's January policy-setting meeting for guidance.

The minutes from the January meeting of the Federal Open Market Committee were released on Wednesday, showing Federal Reserve officials forecasting increased economic growth and inflation.

Harker said he is open to a rethink of the Fed's policy framework, but that he is in "no rush" to adopt, say, a higher inflation target or a almost untested strategy, favored by a few of his colleagues, that would allow inflation to run hot for a period of time to make up for a period of excessively low inflation.

"The Fed is sticking to their path of three hikes, and the balance sheet will continue to get smaller", said Peter Boockvar, chief investment office at Bleakley Advisory Group, in a note.

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USA stocks dropped after the Fed minutes were released despite a brief initial rally.

If the Fed moves three times by its September meeting, its benchmark rate will be positive after adjusting for inflation for the first time in more than a decade, prompting the central bank to pause quarterly rate rises and see how the economy is responding, said Ellen Zentner, chief USA economist at Morgan Stanley, in a client note Tuesday.

Despite the expectations for an economic boost from the December tax cuts, the minutes stressed that the impact remains uncertain.

"Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate", the minutes said. Fed staff projected they expect to meet that goal by 2020. Fed officials said the better-than-anticipated growth in fourth quarter of 2017, consistent job gains and stimulus from the GOP tax bill factored into their decisions. Many economists now expect four moves in 2018. A number of participants said a tighter labor market would likely translate to faster wage growth "at some point", according to the minutes.

Investors fear that low unemployment, increasing USA growth and rising wages will spur the Fed to raise interest rates at a quicker pace, which would boost the cost of borrowing money.

Participants also noted that employers across the United States had difficulty filling openings or retaining workers with the unemployment rate at a 17-year low.

The meeting, the final gathering led by former Federal Reserve chair Janet Yellen, concluded 31 January.

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