Minutes from U.S. Federal Reserve meeting reveal talk of more rate hikes

The U.S. Federal Reserve rate will continue to gradually increase its key policy rate. This is the third time the rate has been hiked this year.

Key interest rate may 'become modestly restrictive for a time' to keep inflation in check

Minutes from September's U.S. Federal Reserve meeting have been released indicating continued rate hikes to slow the economy could be coming. (Andrew Harnik/Associated Press)

Federal Reserve officials last month debated how high they should raise interest rates to achieve their economic goals. Participants remained upbeat on the U.S. economic outlook, with some arguing that they may need to lift rates to a level that would modestly restrain growth.

The discussion, revealed in the minutes of the Sept. 25-26 meeting released Wednesday, shows that a few participants believed that the Fed's key interest rate would need to "become modestly restrictive for a time" to guard against inflation climbing too high.

However, other officials said that they would not favour adopting a restrictive policy "in the absence of clear signs of an overheating economy and rising inflation."

Fed favours continued rate increases

The minutes did not indicate that officials had reached a conclusion, but they did show that all Fed officials favoured gradual rate hikes as long as the economy remains strong, unemployment remains low and inflation remains close to its two per cent target.

At the September meeting, the Fed boosted its key policy rate for a third time this year. The move was immediately criticized by President Donald Trump, who said he was not happy with the continued rate hikes.

Fed chair Jerome Powell, who was chosen by Trump after he decided not to offer Janet Yellen a second term, has said the central bank will not be influenced by outside criticism but will continue to do its job of managing the economy to promote maximum employment and stable prices.

"We don't consider political factors or things like that," he told reporters in September.

U.S. Federal Reserve chair Jerome Powell has said the central bank will not be influenced by outside criticism but will continue to do its job of managing the economy to promote maximum employment and stable prices. (Al Drago/Reuters)

Trump doubles down against hikes

The president has stepped up attacks in recent weeks, going so far in an interview Tuesday as calling the Fed's rate hikes "my biggest threat." Last week he referred to the Fed as "out of control."

Trump's criticism intensified after last week's big stock market tumble, which has been partially reversed this week. Analysts have pointed to rising interest rates, which can make stocks a less attractive investment.

The Fed minutes did not include any discussion of Trump's attacks.

The Fed released an updated economic forecast at the September meeting. The median view of all Fed officials was that rates should be increased one more time this year and three times next year and a final quarter-point rate hike in 2020. At that point, the policy rate would be at 3.4 per cent, according to the median of Fed officials' individual forecasts. That would put it above the three per cent level which the Fed currently pegs as its "neutral rate." The three per cent level is the point where officials believe Fed policy is neither boosting growth or holding it back.

The minutes noted that the tax cuts Trump had pushed through Congress late last year along with the spending increases Congress approved at the beginning of this year were boosting economic activity.

Also noted were concerns about the impact of Trump's get-tough trade policies, citing business contacts who expressed worries about lost markets and rising prices for steel and aluminum.