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Fed minutes reveal debate over inflation and Trump

Most Federal Reserve officials think the USA central bank should reduce its 4.5 trillion dollars of balance sheet later this year, if economy continues to perform as expected, minutes of the Fed's latest monetary policy meeting showed Wednesday.

Minutes of the Fed's discussion at their March meeting released Wednesday showed near-unanimous support for the quarter-point increase in its key policy rate, the second rate hike in three months.

The Fed, chaired by Janet Yellen, bought Treasury and mortgage-backed bonds on a hitherto unprecedented scale in the wake of the financial crisis to help to keep interest rates low and to encourage job creation and economic growth.

"Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year", the Fed said in the minutes.

President Donald Trump arrived in the White House with an agenda pledging corporate tax cuts, infrastructure spending and slashed regulation, but such policies have yet to take shape.

Interestingly, some members of the Fed also noted that seemingly non-economic policies that Trump has thrown around could end up weighing on economic activity.

"Participants continued to underscore the considerable uncertainty about the timing and nature of potential changes to fiscal policy", the minutes said.

More news: White House officials offer change to health care bill

The Fed's next policy meeting is scheduled for May 2-3 while investors now expect another rate rise in June. Members of the Federal Open Market Committee also said meaningful fiscal stimulus from the Trump administration would not be felt until 2018.

The Fed's preferred inflation measure, the Personal Consumption Expenditures price index, has moved steadily towards the Fed's two percent target, adding to pressure on the central bank to raise rates.

Concern about that possibility contributed to a selloff of stocks Wednesday afternoon after the minutes of the Fed's March meeting were released.

This latest twist follows the Fed's sudden, coordinated telegraphing of a March rate hike, which initially was expected in June, and its forecast late a year ago for three increases in 2017, up from a prior view for just two.

Uncertainty around them was substantial, the Fed said.

The minutes make it clear that shrinking the $4.5 trillion balance sheet will be a priority in the coming years, but probably would start very gradually and not until late this year at the soonest.

But the market reversed course after the Fed minutes.

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