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Fed minutes reveal debate over inflation and Trump

Before the end of this year, the Federal Reserve will likely begin paring back the $4.5 trillion balance sheet it amassed as it tried to prop up the US economy during the recession, yet another sign of the economy's continued progress since the financial crisis.

Minutes published last night from the March meeting of the federal open market committee, at which the Fed voted nine to one to raise interest rates, also showed that members had discussed whether to phase out or halt reinvestments all at once.

In order to stimulate growth, the Fed bought Treasury and mortgage-backed bonds on an unprecedented scale during and after the 2007-2009 recession to help keep interest rates low. In their discussion of the path of interest rates, officials supported a gradual pace of rate hikes but said they could change their mind if the economy unexpectedly heated up.

President Donald Trump arrived in the White House with an agenda pledging corporate tax cuts, infrastructure spending and slashed regulation, but such policies have yet to take shape.

Elsewhere in the minutes policymakers appeared to see upside risks to the economy while there was still disagreement on how close the Fed was to meeting its 2 percent inflation goal this year.

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Most economists believe the US economy is strong enough to sustain gradual increases in the interest rate, and that the Fed should now shift its focus to restraining emerging inflation.

Policymakers at the Federal Reserve continue to see "considerable uncertainty" about the effects of possible fiscal stimulus from the Trump administration, according to meeting minutes released today.

US stocks SPX, +0.56% pared gains after the release of the minutes, and the yields on government bonds TMUBMUSD10Y, +0.30% rose.

"While the implications of prospective Fed rate hikes are most likely benign, key features of the current tightening cycle stand in stark contrast to historical experience - and could conceivably lead to more serious market and economic disruption", Oxford Economics said.

The Fed continued to signal that it expected to boost rates three times this year, and many private economists believe that the upcoming rate hikes might occur at the June and September meetings.

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While some Fed officials argued that the inflation target might be achieved by the end of this year, other Fed officials argued that since inflation had run below 2 percent for so long, it would do no harm to allow prices to rise above 2 percent for a time.

In March, the Fed raised rates by 25 basis points.

Uncertainty around them was substantial, the Fed said.

But the market reversed course after the Fed minutes.

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