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MNI FOMC Min:Better Near-Term Outlook Ups Likelihood of Hikes>

--'Further Gradual Increases' Reflects Increased Upside Risk
--Effect of Tax Changes Might Be Somewhat Larger Than Thought 
--Inflation Expected to Rise This Year, Helped by Weaker Dollar
By Jean Yung
     WASHINGTON (MNI) - Federal Reserve officials noted in their January 
meeting that a stronger outlook for economic growth in the near term 
raised the likelihood that further gradual tightening would be 
appropriate, minutes of the meeting released Wednesday showed, sending 
a strong signal that a March interest rate increase was on the table. 
     Voting members of the Federal Open Market Committee "agreed that 
the strengthening in the near-term economic outlook increased the 
likelihood that a gradual upward trajectory of the federal funds rate 
would be appropriate," the account said. 
     "They therefore agreed to update the characterization of their 
expectation for the evolution of the federal funds rate in the 
postmeeting statement to point to 'further gradual increases' while 
maintaining the target range at the current meeting."
     A number of officials marked up their forecasts for economic growth 
in the near term relative to those made for the December meeting in 
light of strong economic data in the United States and abroad, 
accommodative financial conditions, and "information suggesting that the 
effects of recently enacted tax changes -- while still uncertain -- 
might be somewhat larger in the near term than previously thought," the 
minutes said. 
     The FOMC raised the federal funds rate to a 1.25% to 1.50% target 
range on Dec. 13 and maintained that range in the January meeting. 
Though several voting members saw increased upside risk to the near-term 
outlook, the FOMC generally "continued to judge the risks to that 
outlook as remaining roughly balanced." 
     Businesses in various Fed districts cited the tax cuts and 
improvements in the global economic outlook as factors behind their 
general optimism about the economy, officials said. Many business 
contacts reported plans to increase investment to expand capacity. 
     Still, several officials "expressed considerable uncertainty 
about the degree to which changes to corporate taxes would support 
business investment and capacity expansion," the minutes said. 
     More importantly, firms might be using part of their tax savings 
toward issuing one-time bonuses rather than a permanent wage increase, 
a few officials said. 
     That would not serve to boost wage growth, which has been notably 
sluggish even as the economy runs hotter than its trend pace, officials 
said. They continued to note "few signs" of any broad pick-up in wage 
     A few Fed officials suggested that the recently enacted tax cuts 
could actually lead firms to cut prices in order to remain competitive 
or to gain market share, which "could result in a transitory drag on 
     At the same time, several officials said they expected a lower 
dollar in recent months would help return inflation to 2% over the 
medium term. 
     Generally, officials said they expected inflation to rise gradually 
as resource utilization tightened further and as wage pressures became 
more apparent, the minutes said.      
     A minority of FOMC officials, presumably including Chicago Fed 
President Charles Evans and Neel Kashkari of Minneapolis, who dissented 
against the December rate hike, judged that the FOMC "could afford to be 
patient" in deciding whether to raise rates again, the minutes said. 
     These officials "saw little solid evidence" that the strength of 
the economy was showing through to significant wage or inflation 
pressures, the minutes said. 
--MNI Washington Bureau; tel: +1 202-371-2121; email: 

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