Almost all members of the Federal Open Market Committee expect economic conditions to warrant only gradual increases in the federal funds rate, and many did not expect it to reach more normal levels until 2019, according to minutes released Wednesday of the group's Dec. 13-14 meeting.
That meeting saw the first rate increase in 2016, with the committee unanimously agreeing to raise the rate by 25 basis points to a 0.5% to 0.75% range.
“Many participants judged that the appropriate level of the federal funds rate in 2019 would be close to their estimates of its longer-run normal level,” the minutes said.
The median projections of the federal funds rate continued to show gradual increases, to 1.4% at the end of 2017, 2.1% at the end of 2018 and 2.9% at the end of 2019.
A strengthening labor market and expectations that inflation would rise to a 2% objective over the medium term persuaded FOMC members to approve the modest rate increase, although some worried about how a strengthening dollar would impact inflation. Since their early November meeting, most participants attributed improvements in financial market conditions — including increased longer-term interest rates, a strengthening dollar, rising equity prices and narrowing credit spreads — “to expectations for more expansionary fiscal policies in coming years or to possible reductions in corporate tax rates,” according to the minutes.
In their economic forecasts, participants emphasized “considerable uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives, as well as about how those polices might affect aggregate demand and supply,” the minutes said.