The US economy is strong, the recession mentioned yet, according to minutes of Fed

by Jason Lange

WASHINGTON (Reuters) – The monetary policy committee (Fomc) of the federal Reserve spoke of recession and expressed concern that tensions in international trade affect an economy, which, according to most indicators, nevertheless seems solid, according to the minutes of the monetary policy meeting of June 12 and 13, published on Thursday.

During this meeting, the central bank raised rates for the second time of the year and, on reading the “minutes”, it seems that its makers may soon know that the cycle of monetary tightening is advanced enough for monetary policy to be arriving at the stadium, or it does not hinders nor stimulates the economy.

The report leaves the impression of a Fed that impressed by the strength of the u.s. economy and convinced of the correctness of his choice to continue the cycle of rising interest rates, but remains attentive as to what might distort the upward trajectory of the economy.

Thus, its members wondered if the narrow yield spread between the interest rates for long and short could be interpreted as the sign of a recession that is waiting for its hour.

“A number of participants thought that it would be important to continue to monitor the slope of the yield curve”, one reads in the minutes.

The Fomc was also interested in another potential indicator of recession: the gap between the rate of the Fed funds current and expected several quarters later, on the basis of the evolution of the market in the future.

This indicator is based may be on more reliable information than the yield curve, is likely to be distorted by one-off elements, believes the Fomc.

The report does not say if the Fed officials have considered if one or the other of these two indicators was actually a recession.

The political situation has not been forgotten, either in Europe or in certain emerging countries.

Number of contacts of the national bank have expressed concern that the recent increase in customs duties occurred in the United States and among its trading partners weighs on the investment.

“Most (members of the Fed) have observed that the uncertainty and risk associated with the trade policy had increased and expressed concern about the fact that such uncertainty and such risks can have long-term negative effects,” reads one still in the minutes.

(Wilfrid Exbrayat for French service, edited by Jean-Michel Belot)