The policy decision at the May meeting was widely seen as an affirmation by Fed officials that they will stay the course on their plans to increase rates to historically normal levels, after leaving them near zero for years following the Great Recession. The minutes seem to affirm that Fed officials are not wavering in that approach — though they report officials expressing “a range of views” on the amount of rate increases that will be needed to maintain the Fed’s policy objectives in the medium term.
Economic projections released after the Fed’s March meeting suggest officials expected to raise rates two more times in the months to come, for a total of three increases this year. Nearly half of the officials indicated they expected one additional increase on top of that, for a total of four in 2018. Many economists continue to forecast a total of four hikes this year, as well.
Recent economic data points have seemed to validate the Fed’s approach. The unemployment rate has dropped to 3.9 percent — though at the time of the May meeting, the most recent data showed 4.1 percent. While wage growth remains sluggish, particularly for a time of such low unemployment, the inflation rate has risen to about 2 percent.
A few developments in the data appear to have surprised officials in recent months, the minutes indicated. One was a slowdown in growth in advanced countries around the world, particularly Britain. Consumer spending in the United States has lagged the expectations of Fed staff in recent months, the minutes showed, which in turn has lowered the staff’s growth projections slightly.
While some Fed officials have warned in recent months that they are concerned about the economy “overheating” — a condition when very low unemployment sets off a rapid increase in wages and prices, which then forces the Fed to raise rates abruptly — there were few signs of such concerns in the May meeting statement. There were continued signs — as Fed officials expressed in their March meeting — of concern for the potential harm from an escalating trade war with China. The Trump administration remains locked in negotiations with Chinese leaders that have included threats of tariffs on both sides.
The Fed’s chairman, Jerome H. Powell, has taken a wait-and-see approach to such risks in public comments this spring. In the May minutes, other officials reported unease among business leaders they had spoken to about trade. In several Fed districts, the minutes said, “contacts expressed concern about the possible adverse effects of tariffs and trade restrictions, including the potential for postponing or pulling back on capital spending.” In other cases, “it was noted that the potential for higher Chinese tariffs on key agricultural products could, in the longer run, hurt U.S. competitiveness.”
Business contacts also reported that they were seeing “shortages of workers in specific industries or occupations,” the minutes show. “In some cases, labor shortages were contributing to upward pressure on wages.”