Fed minutes point to increased upside risks to inflation

ISTANBUL

The US Federal Reserve's minutes, released Wednesday, showed the central bank’s officials believe that downside risks to employment and economic growth and upside risks to inflation have increased.

The minutes of the last meeting, in which the Fed kept the federal funds rate unchanged in the target range of 4.25% to 4.50% in line with expectations, showed that bank officials assessed increased uncertainty about the economic outlook.

Information from the business community and several surveys showed some deterioration in the confidence of households and businesses amid heightened uncertainty about government policies.

Some bank officials said that high uncertainty has the potential to reduce consumer spending, business hiring and investment activity.

"Participants generally saw increased downside risks to employment and economic growth and upside risks to inflation while indicating that high uncertainty surrounded their economic outlooks," it said.

The minutes noted that inflation may increase this year due to the impact of higher tariffs, but there is considerable uncertainty about the magnitude and persistence of these effects.

Some officials noted that the announced or planned tariff increases were larger and more comprehensive than many business circles had expected.

"In discussing the outlook for monetary policy, participants remarked that uncertainty about the net effect of an array of government policies on the economic outlook was high, making it appropriate to take a cautious approach," it said.

"In discussing risk-management considerations that could bear on the outlook for monetary policy, participants assessed that uncertainty around the economic outlook had increased, with almost all participants viewing risks to inflation as tilted to the upside and risks to employment as tilted to the downside," it added.

The minutes noted that monetary policy was well positioned to respond to future developments and that a restrictive policy could be maintained for longer if inflation remained elevated and eased if labor market conditions deteriorated or economic activity weakened.