Strong economic growth and an uptick in inflation have boosted confidence among Federal Reserve policymakers that the U.S. economy is ready for higher interest rates, according to an official account of the central bank’s most recent meeting in late January.
The minutes appeared to reinforce investor expectations that the Fed would raise rates at its next meeting in March.
Shortly after the meeting minutes were published Wednesday, Goldman Sachs upwardly revised its probability of a March rate hike to more than 95 percent.
“The minutes from the January Federal Open Market Committee meeting indicated further improvement in the growth outlook and slightly more hawkish views on inflation,” Goldman Sachs said in a research note late Wednesday.
Robust economic data, accommodative financial conditions and the impact of the recent tax overhaul all contributed to the U.S. central bank improving its economic outlook.
At the end of 2017, most Fed policymakers forecast the U.S. central bank would raise rates three times in 2018 — as it did last year.
However, in the policy statement published after its meeting on January 30, the Fed said it “expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.”
The account said the inclusion of the term “further” reflected an uptick in confidence among Fed officials.
“The minutes also supported a hawkish interpretation of the word ‘further’ in the January statement, noting that stronger growth would increase the odds of an upward trajectory in the funds rate,” Goldman Sachs said.
The market, which currently expects three rate hikes for 2018, sees an 84.5 percent chance the U.S. central bank will raise rates at its March meeting, according to the CME Group’s FedWatch tool.
“I’m happy about the pace of the rate hikes that they are talking about (but) I’m extremely concerned about them delaying because of financial asset moves or short-term volatility,” Daniel Lacalle, chief economist at Tressis Gestion, told CNBC Thursday.
“The biggest risk of a financial crisis is to keep rates ultra-low for a very long time and by that create a bubble that then is impossible to curve … A crisis always happens because rate hikes happen too late,” Lacalle added.