Fed Minutes: Members Split Over Need For Faster Rate Hikes

Most of the top Federal Reserve officials said it was likely that the central bank would start to shrink its balance sheet this year, according to minutes of the March policy meeting released Wednesday.

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

The Fed bought Treasury and mortgage-backed bonds on an unprecedented scale in the wake of the financial crisis to help keep interest rates low to spur hiring and growth.

Trump has promised to return the United States to sustained 4% annual GDP growth (which he recently downgraded to a 3% target), slash taxes significantly, invest $1 trillion in infrastructure, expand job opportunities, and more.

The minutes showed that the Fed officials see more upside risks to the economic outlook, on the expectation of more expansionary fiscal policies and diminished risks from overseas economies.

Most economists believe the USA economy is strong enough to sustain gradual increases in the interest rate, and that the Fed should now shift its focus to restraining emerging inflation.

"Participants continued to underscore the considerable uncertainty about the timing and nature of potential changes to fiscal policies as well as the size of the effects of such changes on economic activity".

The minutes showed that several Fed officials believed that Trump's stimulus plans would likely not begin until next year. Investors generally see the reduction in the Fed's balance sheet leading to higher rates.

The release of the minutes came a day after the sudden resignation of FOMC member Jeffrey Lacker - the president of the Richmond Federal Reserve Bank - who admitted to a role in the leak of confidential minutes meetings in 2012.

The most recent projections from the Federal Open Market Committee, which sets the Fed's benchmark rates, were for a total of three rate hikes in 2017.

The minutes recorded the views of policymakers expressed at a March 14 - 15 meeting, when they voted to raise their benchmark interest rates to head off mounting inflation.

"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.

Uncertainty around them was substantial, the Fed said.

New York Fed President William Dudley recently said that taking steps to normalize the balance sheet would tighten financial conditions and could affect the pace of rate rises.

But the market reversed course after the Fed minutes.

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