A majority of US central bankers favor raising benchmark interest rates in the near term, signaling that the Federal Reserve is likely to tighten monetary policy next month, minutes from their last meeting revealed on Wednesday.
However, sharp disagreements persist among policymakers over the dangers of inflation and the need to raise rates, the minutes of the Fed’s October 31 to November 1 meeting showed.
Some members are also concerned that Wall Street’s dizzying heights and record-smashing rallies could spell trouble.
The Fed has raised rates twice this year and markets widely expect it to adopt a third increase next month despite persistently weak inflation and sluggish wage growth. The weakness of price pressures amid record low unemployment and steady job creation has baffled economists.
Outgoing Federal Reserve Chair Janet Yellen has acknowledged that policymakers cannot fully explain the weakness of inflation, but that most expect it to begin rising in the medium term, suggesting that the Fed should raise rates ahead of time.
Waiting too long to act could see inflation take off and force the US central bank to raise rates suddenly, harming the world’s biggest economy, most Fed members say.
However, a vocal minority on the Fed’s Federal Open Market Committee (FOMC) have strenuously disagreed over the course of this year’s policy meetings, pointing to slack in labor markets and the absence of any upward trend in price pressures.
“Many participants,” the minutes showed, felt another rate hike was “likely to be warranted in the near-term” if data on the economy remain on the current path.
“A few other participants thought that additional policy firming should be deferred until incoming information confirmed that inflation was clearly on a path toward the committee’s symmetric 2 percent objective.”
Raising rates too soon could also cause the public “to question the committee’s commitment” to its 2 percent target.
Meanwhile, some members said “elevated asset valuations” on financial markets combined with low volatility raised concerns about “a potential buildup of financial imbalances.”
“They worried that a sharp reversal in asset prices could have damaging effects on the economy,” the minutes showed.
Other FOMC members countered that reforms adopted in the wake of the 2008 global financial crisis had left banks with greater capital strength, “increasing the resilience of the financial system to potential reversals in valuations.”
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