Fed Says Tax Cuts Could Boost US Economy

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2018-02-22 HKT 04:28

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  • The US Federal Reserve did not increase the key interest rate at last month’s meeting. File photo: AP

    The US Federal Reserve did not increase the key interest rate at last month’s meeting. File photo: AP

US central bankers said the recent tax cuts could juice the economy more than expected in the near term, meaning further interest rate hikes likely will be needed, according to meeting minutes released on Wednesday.

But the minutes also revealed a split on the Federal Reserve's policy-setting committee, with some officials saying the central bank can afford to be patient in raising the benchmark lending rate, according to the minutes of the January 30-31 meeting.

The Fed did not increase the key interest rate at last month's meeting, and indicated three rate rises are expected this year. However, that was before strong January employment report was released, spooking markets due to the fear the Fed will have to raise rates faster to head off inflation. Many economists now expect four moves in 2018.

Despite the expectations for an economic boost from the December tax cuts, the minutes stressed that the impact remains uncertain.

Participants in the policy-setting Federal Open Market Committee (FOMC) noted the tax cuts and the improved global economic outlook as factors supporting US growth this year, which they see as stronger than previously expected.

A number of members noted that "the effects of the recently enacted tax changes -- while still uncertain -- might be somewhat larger in the near term than previously thought," the minutes said.

As a result, the "stronger outlook for economic growth raised the likelihood that further gradual upward policy firming would be appropriate."

However, "some participants" cautioned the committee that inflation, stubbornly low last year despite solid economic growth and falling unemployment, could continue to fall short of the Fed's two percent goal.

They noted the absence of "significant wage or inflation pressures," and said the central bank "could afford to be patient in deciding whether to increase" the benchmark interest rate. (AFP)