A strengthening economy and expectations of upward movement on inflation convinced members of the Federal Open Market Committee to unanimously vote to raise interest rates by 25 basis points at the March 21 meeting, according to minutes released Wednesday.
Committee members also expected further interest rates hikes to be warranted based on the medium-term outlook, with some of them signaling that "the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected," the minutes said.
The vote to raise rates to a range of 1.5% to 1.75% was unanimous among the eight members attending the two-day meeting, the first one chaired by Jerome Powell, who said at a press conference after the meeting that committee members "are trying to take the middle ground" between accommodative monetary policy and raising rates.
The minutes also said that financial markets experienced a notable bout of volatility early in the period between meetings, particularly pronounced in equity markets.
Many participants reported considerable optimism among the business contacts in their respective districts, despite concerns about the possible ramifications of the recent tariffs on imported steel and aluminum. "A strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy," the minutes said.
While FOMC members do not yet consider trade tensions a threat, concern is rising in markets, said Bob Miller, managing director and head of U.S. multisector fixed income at BlackRock. "At this point, we think the economic impact of fiscal policy and the improvement in inflation fundamentals far outweighs the potential impact of proposed trade tariffs for the FOMC's reaction function. However, geopolitical tensions are non-linear in nature, and will require careful monitoring for potential economic impact in the months ahead," Mr. Miller said in a statement.