MNI FOMC Min: Retaliatory Trade Actions Present Downside Risks>

--Further Firming of Monetary Policy Likely Warranted

--Policy Stance Moving Gradually to 'Neutral' 

--Hitting Inflation Goal More Likely on Stronger Outlook, Data

By Jean Yung

     WASHINGTON (MNI) - Tariffs on imported steel and aluminum won't 

likely affect the national economic outlook, but retaliation from 

trading partners and the uncertainty associated with conflicts present 

downside risks to the U.S. economy, Federal Reserve officials said at 

their March meeting. 

     According to the minutes of the March 20-21 Federal Open Market 

Committee gathering, released Wednesday after a typical three-week 

delay, "a strong majority" of Fed officials viewed retaliatory trade 

actions by other countries as well as uncertainties associated with 

trade policies as having the potential to dampen growth. 

     They also reported concern among their business contacts about the 

possible ramifications of the Trump administration's recently announced 

but not-yet-implemented tariffs, adding that agricultural firms were 

"feeling particularly vulnerable." 

     Still, both firms and officials were optimistic overall about the 

economic outlook. With U.S. fiscal policy expected to provide greater 

impetus to the economy over the next few years than Fed officials had 

previously thought, and almost all FOMC members thought it appropriate 

to raise interest rates to a 1.50% to 1.75% range on March 21.

     "All participants agreed that the outlook for the economy beyond 

the current quarter had strengthened in recent months," the minutes 

said. "With regard to the medium-term outlook for monetary policy, all 

participants saw some further firming of the stance of monetary policy 

as likely to be warranted." 

--MOVING TO NEUTRAL

     The FOMC was about evenly split on forecasting three or four hikes 

this year, with the median sitting at three. They also expect to raise 

rates three times next year and twice in 2020, one more increase over 

the same time frame than they penciled in in December. 

     That would take the fed funds rate to 3.4% by the end of 2020, half 

a percentage point above its estimated longer run normal value and where 

it might remain "for a time," several officials said. 

     Accordingly, some officials pointed out, it might become necessary 

"at some point" to revise the FOMC's policy statement to acknowledge 

that "monetary policy eventually would likely gradually move from an 

accommodative stance to being a neutral or restraining factor for 

economic activity." 

     Currently, the policy statement reads: "The stance of monetary 

policy remains accommodative, thereby supporting strong labor market 

conditions and a sustained return to 2 percent inflation." 

--INFLATION PROGRESS

     Most officials said the stronger economic outlook and somewhat 

higher inflation readings in recent months had "increased the likelihood 

of progress" toward the Fed's 2% inflation target. 

     However, they saw just modest wage increases, with some businesses 

preferring to change job requirements to match candidates rather than 

raise wages in a broad-based fashion.      

     "Most still described the pace of wage gains as moderate; a few 

participants cited this fact as suggesting that there was room for the 

labor market to strengthen somewhat further," the minutes said. 

--FISCAL EFFECTS UNCERTAIN 

     The Fed's assessment of the Trump administration's fiscal stimulus 

at a time of full employment remained "uncertain," the minutes said. 

     In addition to uncertainty over the magnitude and timing of the 

effects, "there have been few historical examples of expansionary fiscal 

policy being implemented when the economy was operating at a high level 

of resource utilization," the account said. 

     A number of officials also suggested that uncertainty about whether 

all elements of the tax cuts would be made permanent, or about the 

implications of higher budget deficits for fiscal sustainability and 

real interest rates, "represented sources of downside risk to the 

economic outlook." 

--MNI Washington Bureau; tel: +1 202-371-2121; email: jean.yung@marketnews.com 

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