Business

Federal Reserve eyes more aggressive US interest rate path

US Federal ReserveImage copyright Getty Images

Some members of the Federal Reserve are urging the bank to consider raising interest rates more quickly, in what could mark a turn from the gradual approach it has taken in recent years.

They expect stronger economic growth and inflation to warrant more aggressive action over the medium term.

Their views were laid out in the minutes of the bank’s March meeting, published on Wednesday.

Share markets, which watch rates closely, dipped on the release.

The Fed uses interest rates as its primary tool to keep the US economy on a path of sustained growth and controlled inflation.

It lowered rates dramatically during the financial crisis to spur economic activity, but the Fed has been raising rates slowly in recent years as the economy strengthened.

Slightly steeper?

“Almost all” participants agreed that a gradual approach to raising interest rates remained appropriate in the medium term, according to the minutes.

However, “a number of participants” said they expect stronger growth and inflation in the next few years, suggesting the path for interest rates “would likely be slightly steeper than they had previously expected”, according to the minutes.

Members also discussed the need to state “at some point” that its policies would likely move from trying to spur economic activity, to being neutral – or even a “restraining factor”.

The discussions come after a pick-up in growth last year, which pushed the unemployment rate down to 4.1% – the lowest level since 2000.

Economists predict that recently approved tax cuts and public spending will spur further growth, and possibly inflation. However, trade disputes, most prominently about tariffs on goods in the US and China, are a worry.

An increase in the Fed’s benchmark federal funds rate typically leads to higher rates for consumers and businesses.

Savers benefit, but borrowing becomes more expensive, which can dampen activity in industries such as housing and car sales and raise costs for businesses that rely on debt.

~Source reference~