US stocks trades lower after Fed minutes

Roman Schwartz
February 23, 2019

US stocks were little changed on Wednesday as investors weighed the latest developments in trade talks between the United States and China, while waiting for minutes from the Federal Reserve's January policy-setting meeting.

Communications from Federal Reserve officials were among a string of factors behind the gloomy mood on Wall Street at the end of 2018, adding to concerns about political and economic strains, the central bank said in meeting minutes out Wednesday.

"We look to the minutes of the January FOMC meeting for insights as to whether FOMC participants see the rate hike cycle as essentially complete or whether members still expect further rate hikes as part of the baseline outlook".

While the USA economy is expected to remain solid, the waning stimulus from the Republican-driven tax cuts of 2017 will contribute to the slowing, with "GDP in 2019 to step down somewhat from the pace seen over 2018", the minutes said.

Unanswered was the question of how long the Fed would remain "patient" on policy, and if the central bank's next policy move would be to ease, rather than tighten, policy.

The shift occurred after the worst December for US stocks since the Great Depression, trade tensions escalated between the USA and China, and President Donald Trump berated officials for tightening monetary policy too much.

But though "several" participants thought a rate increase would be necessary only if inflation unexpectedly surged, "several other participants indicated that, if the economy evolved as they expected, they would view it as appropriate to raise the target range for the federal funds rate later this year".

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But another rate increase may be warranted if price pressures pick up, some officials said, according to the minutes.

The minutes also showed many participants were not yet clear what adjustments to rates might be needed later this year.

Analysts said the Fed's dovish tilt was confirmed but not all were convinced it was justified by the economic conditions.

But RDQ Economics said the Fed's dramatic shift could whipsaw financial markets, and said the firm was not convinced that the downside risks justified keeping the key borrowing rate on hold.

"Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year", according to the record of the Federal Open Market Committee's January 29-30 gathering released Wednesday.

It also signaled it may slow or end reductions to its $4 trillion balance sheet, a process it had previously characterized as being on automatic pilot.

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