All signs point to more Fed rate hikes in 2018

Federal Reserve officials are increasingly optimistic about U.S. economic growth this year, leaving them on course to...

Posted: Feb 22, 2018 8:55 AM
Updated: Feb 22, 2018 8:55 AM

Federal Reserve officials are increasingly optimistic about U.S. economic growth this year, leaving them on course to lift interest rates further.

The minutes of the Fed's late January meeting, made public Wednesday, showed an even rosier view of the economy than officials held at the end of last year. Some members upgraded their forecasts.

The economy is building steam after years of anemic growth. It's grown at a strong pace in the last three quarters. Consumer confidence has returned to pre-crisis levels. And businesses are investing at the fastest rate since 2011.

At its latest meeting, Fed officials took into account the $1.5 trillion tax cut passed by Congress in December and record highs in the stock market in January. The two-week market sell-off that rattled investors came later.

Fed officials noted the economic impact of the new tax law "might be somewhat larger in the near term than previously thought," according to the minutes.

Since that meeting, even more evidence has shown a strengthening economy, most notably the fastest wage growth in nine years.

Investors will be closely watching Fed Chairman Jerome Powell's first appearance on Capitol Hill next week, and then the Fed's March meeting, for clues about whether even faster interest-rate hikes are in the works.

For now, the central bank has penciled in three rate hikes this year, and two more in 2019. The minutes of the January meeting didn't indicate plans for additional moves, and analysts who read the minutes suggested the Fed would stay the course.

"The Fed is sticking to their path of three hikes, and the balance sheet will continue to get smaller," said Peter Boockvar, chief investment office at Bleakley Advisory Group, in a note.

The Fed has also been unloading trillions of dollars of assets that it purchased to lift the economy after the financial crisis a decade ago.

Stocks gained ground after the minutes were released, then reversed course. The Dow finished down 167 points.

And the 10-year Treasury yield crept to a four-year high of 2.95%. Bond yields have been rising as investors grapple with the possibility that the stronger economy, a growing federal deficit and accelerating inflation will force faster interest rate hikes.

Related: Fed's Powell will head to Capitol Hill later this month

While policymakers accounted for the impact of tax cuts in their economic forecasts in December, several officials said they upwardly revised their growth projections in January, according to the minutes.

In their January discussion, Fed officials pointed to a stronger labor market, a steady employment rate of 4.1%, a rise in household spending and solid investment by businesses as factors in bolstering their confidence to move forward with at least three rate hikes this year.

"A majority noted that a stronger economic outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate," according to the minutes.

Nearly all FOMC members said they expect inflation to gradually move to the Fed's 2% target, the level it considers healthy for the economy. Fed staff projected they expect to meet that goal by 2020.

Still, Fed officials noted "considerable uncertainty" remained around a number of federal government policies that could affect the economy.

Related: Yellen's historic legacy: Wise caution and a successful recovery

While FOMC participants said businesses they spoke to were "generally upbeat" about the economy because of tax cuts and an improving global economy, some Fed officials conveyed "considerable uncertainty" over how corporate tax cuts would spur business investment.

"Firms may be only just beginning to determine how they might allocate their tax savings among investment, worker compensation, mergers and acquisitions, returns to shareholders, or other uses," according to the minutes.

Participants said some businesses indicated they might use part of their tax savings as a one-time bonus for workers as opposed to a permanent wage increase, according to the minutes.

Analysts expect many more companies to use most of their tax savings to buy back their own stock or to increase their dividends.

Related: Prices are going up. But it's good news for you

Fed officials said they don't expect wage growth to grow significantly if productivity remains low. A number of participants said a tighter labor market would likely translate to faster wage growth "at some point," according to the minutes.

Participants also noted that employers across the United States had difficulty filling openings or retaining workers with the unemployment rate at a 17-year low.

The meeting was the last chaired by Janet Yellen, who carefully guided the Fed through its first interest rate hikes after the crisis.

Markets widely expect the Fed to raise rates for the first time this year at its March meeting.

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 65436

Reported Deaths: 1848
CountyConfirmedDeaths
Hinds5544117
DeSoto357430
Harrison240635
Madison239664
Rankin225132
Jackson222542
Jones185058
Forrest175855
Washington160640
Lauderdale139790
Lee138333
Neshoba128492
Lamar119214
Oktibbeha109638
Bolivar109333
Lowndes105837
Warren103332
Panola102612
Scott99520
Sunflower99224
Lafayette95615
Copiah94528
Leflore90762
Pike89635
Holmes87348
Grenada83821
Yazoo81512
Pontotoc8098
Lincoln79641
Leake78625
Simpson78630
Monroe76952
Wayne75321
Coahoma71511
Tate70527
Marshall6749
Marion64320
Winston61116
Adams61025
Covington61013
Union60116
George5494
Newton53711
Pearl River52937
Tallahatchie52210
Attala51525
Walthall49119
Chickasaw45019
Noxubee44811
Calhoun4079
Prentiss40310
Claiborne39813
Alcorn3975
Smith39713
Clay39214
Jasper3819
Hancock37314
Tishomingo3635
Itawamba34810
Tippah34213
Clarke32525
Tunica3226
Montgomery3153
Lawrence3127
Yalobusha31210
Humphreys28311
Carroll26011
Quitman2521
Greene23611
Jefferson Davis2286
Kemper22714
Amite2256
Webster22512
Perry2237
Wilkinson20113
Jefferson1946
Sharkey1944
Stone1864
Benton1420
Choctaw1314
Franklin1192
Issaquena251
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 94827

Reported Deaths: 1674
CountyConfirmedDeaths
Jefferson12743242
Mobile9565206
Montgomery6521148
Madison525030
Tuscaloosa410371
Unassigned347461
Baldwin344323
Shelby320133
Marshall309034
Lee262844
Morgan233017
Etowah207530
DeKalb177113
Calhoun170413
Elmore169438
Walker150264
Houston136412
Russell13422
Dallas131123
St. Clair131016
Limestone128413
Franklin125820
Cullman120112
Colbert115613
Lauderdale113917
Autauga106521
Escambia105416
Talladega98613
Jackson9454
Tallapoosa84979
Chambers83538
Dale82323
Blount7743
Chilton7676
Butler75935
Coffee7475
Covington72620
Pike6907
Barbour5695
Lowndes56724
Marion56724
Marengo54614
Clarke4969
Hale46726
Bullock45411
Winston44411
Perry4364
Wilcox41810
Bibb4164
Monroe4154
Randolph39410
Pickens3849
Conecuh38210
Sumter36218
Lawrence3441
Macon33213
Washington32712
Crenshaw3133
Choctaw27912
Cherokee2637
Geneva2550
Henry2523
Greene25011
Clay2495
Lamar2172
Fayette1985
Cleburne1251
Coosa1012
Out of AL00
Tupelo
Clear
93° wxIcon
Hi: 95° Lo: 73°
Feels Like: 97°
Columbus
Clear
89° wxIcon
Hi: 94° Lo: 72°
Feels Like: 94°
Oxford
Clear
90° wxIcon
Hi: 94° Lo: 71°
Feels Like: 91°
Starkville
Clear
90° wxIcon
Hi: 93° Lo: 69°
Feels Like: 92°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather