Fed wary of trade war, says tax cuts a 'significant boost'

Federal Reserve officials expect to quicken the pace of interest rate hikes over the next few years as tax cuts contribute to a brighter U.S. economic outlook.

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In minutes from the central bank’s March meeting, the Fed said Wednesday that members of the policy-setting Federal Open Market Committee believe inflation will move closer to its 2% target in the coming months, even as wage growth remains modest.

“A number of participants” indicated that a stronger economic forecast and increased confidence of higher inflation “implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,” the FOMC said in its meeting minutes.

Officials also see the $1.5 trillion tax reform package, signed by President Donald Trump in December, providing a “significant boost” to the economy.

During the March meeting, the Fed lifted its median estimate for U.S. growth to 2.7% in 2018, up from 2.5%, and raised the benchmark interest rate by a quarter-percentage point.

The Fed cited increased trade tensions as a potential headwind for the economy. Tariffs imposed by Trump on steel and aluminum are unlikely to have a significant effect on the economic outlook, but a “strong majority” of meeting participants agreed that any retaliation by other nations and uncertainty over trade policies present “downside risks” to the economy.