The Fed raised the U.S. benchmark interest rate to a range of 2 percent to 2.25 percent at the September meeting and signaled that it would probably hike it again in December and potentially three more times next year.
“With regard to the outlook for monetary policy beyond this meeting, participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion,” the minutes said.
Trump has made increasingly hostile comments about the Fed and its leader, Chairman Jerome H. Powell, since July. He recently called the Fed “crazy” and has said he is “disappointed” by Powell, whom he nominated for the position a year ago. But Trump kicked up his criticism this week, suggesting Powell is his top adversary, even more so than foreign leaders or Democrats trying to thwart his legislative agenda.
“My biggest threat is the Fed,” Trump said in a Fox Business Network interview that aired Tuesday. “The Fed is raising rates too fast.”
Interest rates in the United States are still low by historical standards. The Fed’s top leaders say the “natural” rate of interest, which neither helps nor hurts the economy, is about 3 percent. Anything below that is viewed as boosting the economy. But the minutes of the September meeting revealed that there is debate internally at the Fed about what to do when interest rates hit 3 percent, probably around the middle of next year.
Some policymakers said they think interest rates need to rise above 3 percent to be “modestly restrictive” for a time to prevent the economy from overheating and inflation from rising too fast, such that businesses and consumers can’t keep up with all the price increases. But other Fed officials said they would not favor a restrictive stance unless there were clear signs that inflation was a lot higher than the central bank’s 2 percent target.
As Trump was sitting down for his Fox interview Tuesday, the new head of the San Francisco Fed defended the central bank in her first public remarks since taking the top job at one of the regional Fed banks.
“We are doing our jobs. We continue to make interest rate policy we think is appropriate for the economy,” Mary Daly said. “You just keep going back and doing your job.”
Powell has repeatedly said that the Fed is independent of politics and that the central bank remains focused on the task of keeping unemployment low and prices stable. While Trump has publicly criticized the Fed, he has not spoken personally to Powell. He continues to nominate people to serve on the Fed’s board who are widely respected among economists and believed to be dedicated to preserving the Fed’s independence.
“It’s independent, so I don’t speak to them,” Trump said, “but I’m not happy with what [Powell] is doing, because it’s going too fast.”
In addition to discussing interest rates, the Fed minutes show robust debate among policymakers at the central bank over trade, wages and how much interest short-term bonds vs. long-term bonds are paying.
“Some participants commented that trade policy developments remained a source of uncertainty for the outlook for domestic growth and inflation,” the minutes said, adding that “tariffs on aluminum and steel were cited as reducing new investment in the energy sector” and that some businesses were telling them they would likely pass tariff costs on to consumers.
But the Fed’s top policymakers said that there was still little sign of harm to the overall economy so far from the trade battle.
On wages, the growing consensus at the Fed is that pay remains low because of “tepid productivity growth.” Wage growth is hovering just under 3 percent, according to the Labor Department. Some Fed officials argue that is about right because inflation is about 2 percent and productivity is about 1 percent. Still, that level of wage growth is low by historical standards and leaves many workers feeling as though they are not getting ahead because higher costs are eating up most of their pay raises.
Fed officials also debated whether they should be paying more attention to what’s known as the yield curve, the difference between interest rates on long bonds such as the 10-year U.S. Treasury and short bonds such as three-month Treasury bills. There has been concern that the yields curve could invert, with longer bonds paying lower interest than shorter bonds, a traditional sign that a recession is coming soon. But many at the Fed don’t think it’s as reliable of an indicator this time, because the Fed has been buying so many bonds as part of its stimulus program after the financial crisis.