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U.S. Federal Reserve policy-makers in December aimed to signal that a 1-1/2 year rate rise campaign was likely near its end, according to minutes of the central bank’s mid-month meeting released today (Jan. 3).
Reuters reported that in a statement issued after the Fed’s last quarter-percentage point rate hike on Dec. 13 – its 13th consecutive increase – officials said “some further measured policy firming” was likely. The minutes of that meeting showed officials believed that language would suggest to financial markets that only a few more rates hikes would likely follow.
“Although future action would depend on the incoming data, this characterization of the outlook for policy was seen by most members as indicating that, given the information now in hand, the number of additional firming steps required probably would not be large,” the minutes said.
The minutes said officials’ views varied as to how much further rates, which stood at an ultra low 1% when the tightening cycle began in June 2004, might need to rise.
“Members thought that the policy outlook was becoming considerably less certain and that policy decisions going forward would depend to an increased extent on the implications of incoming economic data for future growth and inflation,” they said.
The minutes said Fed officials would need to be mindful that rate increases impacted the economy with a lag. But they also needed to keep in mind the potential impact the recent prolonged stretch of favorable financial conditions would have on asset prices and consumer and business demand.
Some FOMC members felt the cycle of rate rises had brought borrowing costs into a range consistent with keeping the economy operating near its noninflationary potential.
To reflect that view, the Fed’s post-meeting statement dropped its long-standing characterization of rates as being accommodative, or economically stimulative.
The rate-setting committee, however, decided to retain the use of the word “measured” in describing the likely future path of policy, even though some officials thought it was no longer needed.