Fed's minutes underline tightening policy path with Trump

The Federal Reserve released the minutes of its December 13-14 meeting, at which members of the Federal Open Market Committee voted to increase overnight interest rates by 25 basis points for the first time since December, 2015, when the bank raised them for the first time in a decade from their record zero lows.
 
Currently, interest rates on federal money range from 0.50% and 0.75%, with expectations of more hikes this year as most members agree that Donald Trump's stimulus plans would increase risks of inflation in the coming period, as Trump has promised to cut taxes and spend more on infrastructure and lessen the regulation on banks, which pushed policymakers to upgrade their forecasts for rate hikes in 2017 to three, compared to two in September.
 
The minutes revealed that the data released since the November meeting pointed to strong labor performance, while economic activity expanded moderately since the middle of the year, with labor gains being particularly solid in recent months, as the unemployment rate fell, while members pointed to the moderate growth of household spending, but fixed-rate investments were still fragile, as inflationary pressures rose compared to the start of the year.
 
However, members mentioned that inflation was still below the bank's long-term 2% target, which reflects the previous drops in energy and non-oil import prices, while pointing to strong recovery for inflationary pressures in recent months, while remaining moderate at large, as most indicators didn't change in the long term.
 
Members asserted their aim to pave the way for more jobs and to stabilize prices, amid expectations of more expansion for the economic activity and continued growth in the labor sector, and for inflation to rise to 2% in the medium term, as previous price drops in oil and imports are offset, while the labor sector improves further. Short-term risks are considered balanced, while the Committee will keep watching inflation indicators and the global economic and financial developments.
 
As of 08:58 GMT, the dollar index, tracking the greenback against an array of six major counterparts, fell to 102.80 from the opening of 103.23, with an intraday low at 102.39, and a high at 103.44.
 
On the same note, policymakers pointed in the minutes to the current labor sector and inflation conditions as a base to raise interest rates to between 0.5 and 0.75%, while keeping the monetary policy accommodative, in turn providing extended support to the labor sector, while inflation returns to 2%.
 
The minutes also pointed to the members' reliance on assessing the current and expected economic conditions in regard to its policy decisions, with a special eye on reaching full employment and 2% inflation, while taking into consideration a wide array of data and economic information, like labor and inflation indicators, and inflation expectations, in addition to other indicators that relate to the global financial developments. The Committee will keep an eye on the actual and expected progress to the inflation target in case of it not reaching 2%.
 
Members also expressed their belief in the minutes that economic conditions would develop in a gradual way, while the gradual increase in interest rates will be below the expected levels in the long term, as the bank assets its reliance on economic expectations to determine the path for interest rate, and otherwise, he Committee will keep its current policy path unaltered to work on returning the investments of the Federal Reserve's holdings of debts, mortgage-backed securities, and treasury bonds in public auctions to limits their high levels in the long terms and keep the financial conditions accommodative.
 
It' worth mentioning that Fed Chair Janet Yellen said in a press conference succeeding the FOMC meeting in Washington last month that she expected more improvements in the labor market, and for inflation to arrive at the bank's 2% target in the nest two years, while hinting the Fed's intent to accommodate Donald Trump's plans into its consideration, as she mentioned there's considerable amount of uncertainty regarding the changes in the fiscal policies, with impacts on economic expectations.  
 
Otherwise, here are the Federal Reserve's forecasts for inflation, unemployment, growth for the next three years, according to what was revealed following the last FOMC's meeting in Washington.
 
Growth for 2016 is expected to range from 1.8% to 1.9%, compared to forecasts of 1.7% to 1.9% in the September meeting, while expectations for 2017 range from 1.9% and 2.3%, compared to 1.9% to 2.2% previously. Forecasts for 2018 range from 1.8% and 2.2%, compared to 1.8% and 2.1% previously. Finally, forecasts for 2019 range from 1.8% to 2.0%, compared to 1.7% to 2.0% previously.

The unemployment rate for 2016 is expected to range from 4.7% to 4.8%, compared to 4.7% to 4.9% in the September meeting, while expectations for 2017 range from 4.5% to 4.6%, compared to 4.5% to 4.7%. Expectations for 2018 range from 4.3% to 4.7%, compared to 4.4% to 4.7% previously, and finally, forecasts for the unemployment rate in 2019 range from 4.3% to 4.8%, compared to 4.4% to 4.8% previously.

The Fed expects inflation in 2016 to settle at 1.5% compared to a range of 1.2% to 1.4% in the September meeting, while expectations for 2017 range from 1.7% to 2.0%, compared to 1.7% to 1.9% previously. Forecasts for 2018 range from 1.9% to 2.0%, compared to 1.8% to 2.0% previously, while finally, inflation in 2019 is expected to range from 2.0% to 2.1%, compared to 1.9% to 2.0% previously.

Core inflation in 2016 is expected to range from 1.7% to 1.8%, compared to 1.6% to 1.8% in the September meeting, while expectations for 2017 range from 1.8% to 1.9%, compared to 1.7% to 1.9%. Forecasts for 2018 range from 1.9% to 2.0%, same as before, while core inflation in 2019 is expected at 2.0%, same as before.

Finally, the Fed expects overnight interest rates to settle at 0.6% in 2016, compared to a range from 0.6% to 0.9% in the September meeting, while forecasts for 2017 range from 1.1% to 1.6%, compared to 1.6% to 1.8% previously. Forecasts for 2018 range from 1.9% to 2.6%, compared to 1.9% to 2.8% previously. Finally, interest rates in 2019 are expected to range from 2.4% to 3.3%, compared to 2.4% to 3.3% previously.