Newsroom

While another hike in the federal funds target rate is expected next month, all members of the Federal Open Market Committee (FOMC) pointed to "ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks." However, they did note strong economic growth in the second quarter, according to minutes released from its meeting earlier this month.

"The Fed is set to move rates one-quarter point higher again next month, and another hike in December is more likely than not," said NAFCU Chief Economist and Vice President of Research Curt Long. "The main issue that could throw a wrench into those plans would be a further escalation in trade tensions. Barring that, the committee is likely to continue raising rates through the first half of 2019."

The FOMC did not raise rates at the close of its two-day policy-setting meeting earlier this month, as was expected. The committee last raised the federal funds target rate to the current range of 1.75 to 2 percent at the end of its June meeting. The FOMC meets again Sept. 25-26.

According to the August meeting minutes, members of the committee noted a number of favorable economic factors that supported above-trend GDP growth, including "a strong labor market, stimulative federal tax and spending policies, accommodative financial conditions, and continued high levels of household and business confidence."

Those businesses that seemed most concerned about the ongoing trade issues have not adjusted their capital expenditures or hiring yet, but may do so if trade tensions continue.

Some of the committee members expressed more confidence that the recent return of inflation to close to the Fed's 2 percent objective would be sustained. Some FOMC members also showed concern "that a prolonged period in which the economy operated beyond potential could give rise to inflationary pressures or to financial imbalances that could eventually trigger an economic downturn."

Furthermore, if incoming data continues to support the Fed's current economic outlook, many committee members said it would be time to take another step in removing policy accommodation.