WASHINGTON—The economy is "evolving about as anticipated" with rising economic activity, strong labor market conditions and inflation nearing the Federal Reserve's projections, according to minutes from the Federal Open Market Committee's (FOMC) December meeting.
Following the December meeting, the committee moved forward with its fourth rate hike of 2018, raising the federal funds target rate by a quarter-point to a range of 2.25 to 2.5%. The committee also pared its projection for 2019 rate hikes from three to two.
While economic growth is expected to continue through 2019, those participants who downgraded their economic outlook did so because of "recent financial market developments, some softening in the foreign economic growth outlook, or a more pessimistic outlook for housing-sector activity," explained NAFCU in its analysis.
Also noted in the minutes: The committee found that "investors' perceptions of downside risks to the domestic and global outlook appeared to increase over the intermeeting period, reportedly driven in part by signs of slowing in foreign economies and growing concerns over escalating trade friction.”
Future Rate Hikes?
Regarding an issue being watched carefully by credit unions and over which President Trump has criticized the Fed--future rate hikes–the committee "generally judged that some further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2% over the medium term." However, they added that given the lack of inflationary pressures, the committee "could afford to be patient about further policy firming."
"There is a clear disconnect between the modestly positive outlook among most economists and the rising concerns we see in the financial markets," said NAFCU Chief Economist and Vice President of Research Curt Long. "In his comments last week, Chairman Powell sought to reassure investors that the Fed would alter course if those fears are realized, a point that was also stressed in the committee minutes."
What Minutes Also Showed
Long said FOMC minutes also revealed:
- Household spending over recent months has continued to increase
- Residential investments declined in the fourth quarter, mainly due to rising mortgage interest rates
- Private expenditures for business equipment and intellectual property picked up in the fourth quarter
- Total consumer prices measured by the personal consumption expenditure price index increased 2% over the past 12 months that ended in October
- Financing conditions for the commercial real estate sector "remained accommodative" as did conditions in consumer credit markets
The FOMC will meet again Jan. 29-30.