Interest Rates Likely to Rise in December, Recap of Fed Meeting Shows

WASHINGTON — The Federal Reserve is poised to raise interest rates at its next policymaking meeting in mid-December and to continue raising rates next year, according to the minutes of the central bank’s last meeting published on Thursday.

The minutes said most Fed officials were confident about the economy when they met in early November.

Some Fed officials at the meeting said they were less certain about the economic outlook and about the Fed’s policy plans. But the account of the meeting provided no indication that the central bank is preparing to pause, notwithstanding the hopes of investors and frequent public attacks by President Trump.

“Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon,” barring unpleasant developments, the minutes said.

The Fed’s policy arm, the Federal Open Market Committee, last raised its benchmark rate in September, to a range of 2 percent to 2.25 percent, then left the rate unchanged at the November meeting. The central bank is widely expected to increase the rate by a quarter of a percentage point in December.

The stock market surged on Wednesday after investors interpreted a speech by the Fed’s chairman, Jerome H. Powell, as an indication that the central bank may leave rates closer to the current level. The minutes, however, contained no hint of any such shift in plans at the time of the meeting. Analysts said they were skeptical that the Fed meant to signal a change on Wednesday.

Paul Ashworth, chief United States economist at Capital Economics, said that the market had overreacted, and that the minutes “do not suggest that Fed officials anticipated an imminent pause in the tightening cycle.” He said he expected a rate increase in December and two more during the first half of 2019.

The market’s reaction on Thursday was much more subdued, with the S&P 500 index closing down 0.2 percent.

The Fed is seeking to wean markets from the expectation that it would continue to raise its benchmark rate every quarter. A rate increase in December would be the fifth straight quarterly increase.

The account emphasized that the central bank’s policy “was not on a preset course,” a phrase Mr. Powell also has used in recent remarks. The minutes said the Fed might remove language that predicts “further gradual increases” from its next policy statement to underscore the point that officials will make decisions based on the latest data. But the central bank also said most officials expect “further gradual increases.”

Mr. Trump has loudly complained that the Fed is throttling growth by raising rates. He renewed his attacks earlier this week, insisting in a pair of interviews that the Fed’s march toward higher rates posed a significant threat to the economy.

Some economists agree with Mr. Trump that the Fed should take a break from raising rates, noting that there is little sign that the economy is in danger of overheating. The Commerce Department reported on Thursday that a key measure of inflation rose by 1.78 percent over the 12 months ending in October, below the 2 percent annual pace that the central bank regards as optimal.

“The Fed’s mandate is price stability, and price growth has actually slowed,” Jason Furman, a Harvard economist who was chairman of President Barack Obama’s Council of Economic Advisers, wrote on Twitter on Wednesday. “I don’t understand why wages and prices are moving in different directions, it is very plausible that price growth will pick up again. But I don’t see much cost to a pause while we figure it out.”

Lawrence Summers, who served as Mr. Obama’s chief economic adviser, also has urged caution. In an interview with Fox Business Network scheduled to air on Friday, Mr. Summers said he disapproved of the way Mr. Trump was expressing his concerns, but he agreed with the substance. “I do think that there are more risks of over-tightening than there are of under-tightening right now,” he said.

Mr. Powell has said that the central bank is moving forward with rate increases because the economy is in good health, and that the Fed is trying to strike a balance between allowing the current expansion to continue and ensuring that inflation remains under control.

The economy grew at a 3.5 percent annualized pace in the third quarter, job growth is strong and wages are rising, buttressing the intentions of Fed officials to continue raising rates.

But the minutes noted “some signs of slowing in interest-sensitive sectors” like housing and car sales and said that “conditions remain depressed” in the agricultural sector because of trade tensions.

Fed officials at the November meeting also reviewed a change in the mechanics of monetary policy that the central bank adopted after the 2008 financial crisis.

Before the crisis, the Fed raised interest rates by draining reserves from the banking system. During the crisis, the Fed purchased trillions of dollars in Treasuries and mortgage bonds, which it paid for by pumping reserves into the banking system. The Fed could have reversed the process before raising rates. Instead, it chose to raise rates in a new way, by paying banks to leave reserves untouched.

The Fed is slowly reducing its bond holdings, and officials are debating whether to slash them to a level that would allow a return to the pre-crisis system. The account of the November meeting said officials were pleased with the new system, which has increased the Fed’s control over financial and economic conditions, but made no final decision.

Officials did approve a small tweak. Under the new approach, the Fed aims to keep its benchmark rate near the midpoint of a quarter-point range. Initially, the interest rate the Fed paid banks on reserves was set at the top of the range.

But earlier this year, the Fed set the interest rate on reserves 0.05 percentage point below the top of the range, to help keep the benchmark rate closer to the middle of the range. That has been insufficient, and Fed officials approved a further reduction, if necessary before the December meeting, according to the minutes.

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