Federal Reserve officials are poised to ignore President Trump’s call for them to stop raising interest rates and plan to continue their gradual pace of increases unless Mr. Trump’s trade policies scramble their plans, according to minutes from the most recent Fed meeting.
The minutes, released on Wednesday, also reveal that Fed officials are wary of tariffs hurting the current economic recovery but are waiting to see evidence of widespread damage in economic data. In a more telling sign, Fed officials are increasingly worried that trouble is brewing in the home construction market.
Many officials also hint in the minutes that they are preparing to remove a hallmark phrase of the last decade in Fed support for the economy — “the stance of monetary policy remains accommodative” — from future Fed statements, as rates continue to rise toward a more historically normal level.
Federal Open Market Committee officials left rates unchanged after the meeting that ended Aug. 1 and laid the groundwork in their post-meeting statement to raise rates in September, for the third time this year. Since mid-July, Mr. Trump has used interviews and Twitter to pressure the Fed and its chairman, Jerome H. Powell, to pause the pace of increases, which have left the Fed’s target interest rate between 1.75 percent and 2 percent.
Minutes from the meeting revealed no willingness among Fed officials to grant Mr. Trump’s request. Officials “indicated that information gathered since the Committee met in June had not significantly altered their outlook for the U.S. economy,” the minutes reported. “Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation.”
That’s Fed-speak for “raise interest rates again” — and the minutes note that investors are overwhelmingly convinced another rate hike is coming next month.
While the economic recovery is strong, the Fed minutes show that officials are cognizant of the disparity between slow growth in nominal wages and the strength of the labor market, but they remain largely convinced those gains are about to accelerate.
Officials were united in their concerns over the potential of Mr. Trump’s trade policies, including tariffs levied on steel and aluminum from countries such as Japan, Mexico and Canada, and additional tariffs on other imported goods from China, to crimp economic growth.
“All participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risk,” the minutes reported. A prolonged trade dispute, officials said, would likely bring “adverse effects on business sentiment, investment spending and employment. Moreover, wide-ranging tariff increases would also reduce the purchasing power of U.S. households,” while disrupting supply chains and reducing productivity.
But the officials noted that while companies are complaining about tariffs affecting them, “most businesses concerned about trade disputes had not yet cut back their capital expenditures or hiring but might do so if trade tensions were not resolved soon.”
Other than trade, officials’ largest worry about the economy wasn’t inflation but residential construction. Several officials noted that new home building has slowed, possibly reflecting “declining home affordability, higher mortgage rates, scarcity of available lots in certain cities and delays in building approvals.” Some of their business contacts, officials said, had also complained of labor shortages in the construction sector — and of tariff increases pushing up their cost of materials.