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Economy

Fed members discuss strong economy, trade risks at June meeting

Federal Reserve Chairman Jerome Powell
Federal Reserve Chairman Jerome Powell

With economic activity expanding at "a solid rate," labor market conditions "continuing to strengthen" and inflation near its objective, members of the Federal Open Market Committee voted unanimously to raise the federal funds rate by 25 basis points at the June 12-13 meeting, according to minutes released Thursday.

The eight committee members who attended the two-day meeting approved the increase to a range of 1.75% to 2%, marking the second increase this year. FOMC member projections also shifted to four rates hikes in 2018 from three.

At a press conference after last month's meeting, Chairman Jerome Powell said that he and his fellow FOMC members project, on average, the federal funds rate to rise to 2.4% by the end of 2018, 3.1% by the end of 2019 and to 3.4% by the end of 2020.

Committee members elected to continue along a "path of gradual policy firming" to balance the risk of moving too quickly, "which could leave inflation short of a sustained return to the committee's symmetric goal (2%), against the risk of moving too slowly, which could lead to a buildup of inflation pressures or material financial imbalances," the minutes said.

Trade policy — specifically the uncertainty and risks associated with it — was discussed at the June meeting, the minutes showed. Most committee members were "concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending," the minutes said.

"The Fed seems to be less concerned about the actual economic impact of these tariffs," said Putri Pascualy, managing director and partner at Pacific Alternative Asset Management Co., in an email. "Rather, they are concerned about the impact of the uncertainty on capital spending and business investments."

Bob Miller, managing director and head of U.S. multisector fixed income at BlackRock (BLK), also took note of the committee's trade policy discussion. "We anticipate that this will be a topic of regular discussion going forward as trade implications become clearer and as both influences on prices and sentiment work their way through the economy," he said in a statement.