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Fed minutes point to September hike, possible pause

Staff Writer | August 23, 2018
The minutes of the U.S. central bank's last policy meeting released on Wednesday evening solidified market expectations for another 25 basis point interest rate hike come September, even while hinting at the possibility of a 'pause' thereafter should there be a "major escalation in trade disputes".
Federal Reserve
America   The Federal Reserve appeared to remain set on a gradual pace of rate hikes
Even so, barring the above scenario, the Federal Reserve appeared to remain set on a gradual pace of rate hikes, although rat-setters conceded that it was hard to pin-point what the exact - if it existed - neutral rate was.

According to the minutes, "all participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks. Participants observed that if a large-scale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending, and employment.

"[...] most [rate-setters] expressed the view that an escalation in international trade disputes was a potentially consequential downside risk for real activity.

"Some participants suggested that, in the event of a major escalation in trade disputes, the complex nature of trade issues, including the entire range of their effects on output and inflation, presented a challenge in determining the appropriate monetary policy response."

Participants also noted that the Fed funds rate was moving nearer to the estimated range of values for a so-called 'neutral' rate.

"A number of participants emphasized the considerable uncertainty in estimates of the neutral rate of interest, stemming from sources such as fiscal policy and large-scale asset purchase programs," the minutes continued.

"Against this background, continuing to provide an explicit assessment of the federal funds rate relative to its neutral level could convey a false sense of precision."