Members of the Federal Open Market Committee plan to continue gradually raising interest rates, according to minutes released Wednesday from its Sept. 25-26 meeting.
The FOMC raised the target range for the federal funds rate by 25 basis points at the September meeting, to 2% to 2.25%. It was the third rate hike in 2018. One more is likely in December and three more are probable next year.
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 the Fed's 2% target over the medium term, according to the meeting minutes. "This gradual approach would balance the risk of tightening monetary policy too quickly, which could lead to an abrupt slowing in the economy and inflation moving below the committee's objective, against the risk of moving too slowly, which could engender inflation persistently above the objective and possibly contribute to a buildup of financial imbalances," the minutes stated.
At the September meeting, the FOMC removed wording from its policy statement declaring its stance of monetary policy "remains accommodative." In the minutes, participants said that waiting until the target range for the federal funds rate had been increased further to remove the word "accommodative" could "convey a false sense of precision in light of the considerable uncertainty surrounding all estimates of the neutral federal funds rate."
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.
In an interview with Fox Business on Tuesday, President Donald Trump said the Fed is his "biggest threat" because it's "raising rates too fast."
Greg Peters, senior portfolio manager at PGIM Fixed Income, said higher rates will slow growth, which is why the president is against the Fed's gradual hike strategy. But Mr. Peters expects the Fed to continue on the path it has laid out. "The Fed is a proud, independent institution of individuals who believe they will do the right thing and not be influenced by political noise," Mr. Peters said.
In September, the FOMC raised its forecast for U.S. GDP in 2018 to 3.1% from 2.8% but expects it to slow to 2.5% next year, 2% in 2020 and 1.8% in 2021.