Fed minutes reveal debate over inflation and Trump

That would allow the Fed's balance sheet to gradually run down in a process that is likely to take years.

Members of the Federal Open Market Committee (FOMC) are divided on how President Donald Trump's fiscal stimulus package will affect the USA economy, minutes from a Federal Reserve meeting showed Wednesday.

"I think the operative word here is going to be gradual".

The Fed now holds $4.5 trillion in bonds on its balance sheet. The U.S. job market continues to strengthen, and business and consumer confidence have spiked in recent months.

Fed officials have suggested they might raise rates two, perhaps three, more times in 2017, depending on who is speaking.

The Fed undertook its massive asset purchasing program during the global financial crisis as a means of holding down interest rates and spurring growth.

The minutes recorded the views of policymakers expressed at a Mar 14-15 meeting, when they voted to raise the target range for their benchmark interest rates to 0.75-1.00 per cent in order to head off mounting inflation.

Fed policymakers have previously indicated that any plan to shrink its portfolio would let the bonds naturally roll off, by not reinvesting them when they mature, once its interest rate hikes were "well under way".

A survey of private payrolls released by ADP on Wednesday showed companies added 263,000 workers in March, the largest gain since December 2014. Unemployment is already below the Fed's 4.8 percent goal, while inflation has remained below its 2 percent inflation goal for several years.

While many factors make this effort to raise interest rates different from previous ones, a single challenge stands out: United States economic growth, employment, and inflation have consistently disappointed during this lengthy but slow recovery.

On inflation, the minutes showed that some officials anxious that if unemployment, now at a low 4.7 percent, fell further, it could pose a "significant upside risk" of higher inflation.

The federal government is set to release its official data on employment on Friday.

However, the Fed doesn't believe that Trump will be able to get results this year.

President Donald Trump arrived in the White House with an agenda pledging corporate tax cuts, infrastructure spending and slashed regulation, but such policies have yet to take shape.

Some Fed officials thought the inflation target might be achieved by year's end. Although most members recognised upside risks to growth from fiscal policy, there were concerns over potential negative impacts from any changes to trade and immigration policies.

"Several participants now anticipated that meaningful fiscal stimulus would likely not begin until 2018", the minutes said, "and about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections".

"The desire to signal sooner than later is likely a function of the committee's wish to avoid adverse market reactions", the Barclays note said.

Economic conditions in China and Europe, which had caused the Fed to forego rate increases in early 2016, appeared to have stabilised, according to the minutes.

Feinman said the central bank may be eager to begin unwinding the balance sheet before Yellen's term as chair expires early next year, to ensure that process continues under new leadership. The balance sheet is "not a tool that we would want to use as a routine tool of policy", she said.

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