WASHINGTON — Federal Reserve officials expect Donald J. Trump’s election to result in somewhat faster economic growth over the next several years, but they see little chance of the boom Mr. Trump has promised, according to an account of the Fed’s most recent meeting in mid-December.
That is in part because the Fed plans to raise interest rates more quickly if growth accelerates.
The minutes, released Wednesday, offer more evidence that the Fed sees itself as a counterweight to Mr. Trump’s promised policies of tax cuts and infrastructure and defense spending. They also show just how much Mr. Trump’s unexpected victory has clouded the economic outlook for 2017.
The Fed raised its benchmark rate for just the second time since 2008 at the December meeting, citing the continued expansion of the economy and the steady decline of unemployment. The Fed debated and delayed that increase for most of last year, but the account published Wednesday after a standard three-week delay described the final decision as uncontroversial.
Officials instead spent the meeting talking about what came next. The officials, led by Janet L. Yellen, the Fed’s chairwoman, expect to raise rates three times next year. But the account contains several affirmations that Fed officials are ready to raise rates more quickly if necessary.
Citing “uncertainty regarding fiscal and other economic policies,” the minutes said many Fed officials “emphasized that the greater uncertainty about these policies made it more challenging to communicate to the public about the likely path of the federal funds rate.” In particular, the minutes said that officials wanted the public to understand that the Fed’s prediction about the pace of rate increases depended on its prediction about economic growth. Faster growth would mean faster increases.
By holding rates at low levels, the Fed has sought to increase economic growth by encouraging borrowing and risk-taking; higher rates reduce the stimulative effect. The benchmark rate now sits in a range from 0.5 percent to 0.75 percent, still a very low level by historical standards.
The economic forecast prepared by the Fed’s staff anticipates that Mr. Trump’s election will result in “slightly higher” growth over the next several years. Mr. Trump, in concert with congressional Republicans, is expected to cut taxes and perhaps to increase federal spending in some areas. But the Fed predicts the benefits will be “substantially counterbalanced” by higher interest rates and a stronger dollar, which will reduce exports of American goods and services.
Most Fed officials, in their own forecasts, also saw an increased chance of faster growth. But they said Mr. Trump’s election had clouded the outlook.
“Participants emphasized their uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply,” the minutes said.
Several Fed officials reported that Mr. Trump’s election had increased optimism among business executives in their districts. “Some contacts thought that their businesses could benefit from possible changes in federal spending, tax and regulatory policies,” the minutes said.
The Fed noted, however, that some executives also were concerned about the negative impact of other proposed policy changes. In a recent interview, John Williams, president of the Federal Reserve Bank of San Francisco, said that many executives in his district, which encompasses the western United States, worried about the potential impact of restrictions on immigration and on foreign trade.
Businesses across the country also reported increased difficulty in hiring qualified workers, the minutes said. The unemployment rate fell to just 4.6 percent in November.
Mr. Trump and congressional Republicans want to pass a package of tax cuts this year, and they could take other steps to stimulate economic growth. It could take some time, however, for those measures to increase the pace of economic growth. And independent economists, like most Fed officials, are not convinced that such measures would result in significantly faster growth.
Current economic growth is at roughly the pace that most Fed officials regard as sustainable. The work force is growing slowly as baby boomers retire, and productivity also has increased slowly in recent years. The result is that 2 percent growth may be about as good as it gets for the United States.
Fiscal stimulus might produce a burst of faster growth, but Fed officials are concerned that it also would drive higher inflation. To prevent that, the Fed could move to raise rates more quickly than it currently projects. The account added that Fed officials were confident in their ability to prevent overheating, seeing “only a modest risk” of a “sharp acceleration in prices.”
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