US Federal Reserve officials earlier this month said that a strengthening US economy meant that it would “likely soon be appropriate” to boost their benchmark interest rate, a strong signal that rates would go up next month.
However, minutes of their discussions released on Wednesday also revealed deepening concerns that escalating trade wars could hurt the economy.
CME Group Inc’s tracking of investor expectations put the likelihood of a rate hike next month at 96 percent.
Many economists say they believe that another rate hike will follow in December.
The Fed has raised rates seven times since late 2015 to make sure the lowest unemployment in nearly 50 years does not trigger unwanted inflation.
It raised rates in March and June, pushing the federal funds rate to a level of 1.75 percent to 2 percent.
The minutes, released after the customary three-week delay, covered the July 31 to Aug. 1 meeting. At that session, Fed officials left rates unchanged, while releasing a policy statement that focused on a “strong” economy with solid growth and low unemployment.
However, the minutes showed growing worries about the effect of US President Donald Trump’s get-tough trade policies, which have imposed tariffs on billions of dollars in imports, triggering China and other trading partners to retaliate with tariffs on US goods.
“Participants observed that if a large-scale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending and employment,” Fed officials said.
The minutes listed a number of potential threats from disruptions in business supply chains to potentially triggering “a severe slowdown” in emerging-market countries.
Fed Chairman Jerome Powell is to deliver a key policy address today at the Fed’s annual gathering in Jackson Hole, Wyoming.
Investors are watching to see if he signals any possible change in the expected course of interest rates, because of the threats posed by a widening trade war.
If the economy remains strong as Fed officials are forecasting then “it would likely soon be appropriate to take another step” to raise rates with “further gradual increases” following, the minutes said.
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