US Fed officials show rising confidence on growth, inflation outlook

Washington: US Federal Reserve officials have become more confident about the growth and inflation outlook, paving the way for gradual interest rate hikes in the future.

“Most (Federal Open Market Committee) members viewed the recent data bearing on real economic activity as suggesting a modestly stronger near-term outlook than they had anticipated at their meeting in December,” showed minutes of Fed’s policy meeting on January 30-31 released on Wednesday, Xinhua reported.

The confidence was based on their judgement that that financial conditions remained accommodative, and that the tax cuts bill passed last December would have greater stimulation to consumer and business spending than expected.

According to the minutes, a number of officials had marked up their forecasts for economic growth in the near term, in view of the accommodative financial conditions, big tax cuts and solid domestic and overseas economic data.

In December, Fed officials expected the economy to grow 2.5 per cent this year. Most economists and market analysts now expect the economy to grow 2.6 per cent or higher this year.

Against the background of stronger growth outlook, most Fed officials expected that inflation would likely move up in 2018 and stabilise around the central bank’ s 2 per cent target over the medium term.

However, a couple of officials expressed their concerns that there was little evidence of meaningful improvement in inflation outlook.

In view of the stronger growth and inflation outlook, Fed officials reiterated the central bank would continue to raise interest rates gradually.

“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,” said the minutes.

In January’s meeting, the Fed kept the benchmark interest rates unchanged, but sending the signals of further tightening monetary policy in view of stronger growth and inflation outlook.

Following the meeting, the US stock market hit bumpy waters on the expectation that the faster inflation growth might lead the Fed to raise interest rates at faster pace.

However, many Fed officials downplayed the impact from the market turbulence, saying they would stick to their forecast of stronger growth outlook and gradual rate hike pace.