Federal Reserve officials last month struggled to come to grips with two big uncertainties facing the US economy - whether it would be safe to let inflation rise faster for a while and how to assess the impact of President Donald Trump's ambitious economic stimulus plans.
"Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year", the minutes said.
Interestingly, some members of the Fed also noted that seemingly non-economic policies that Trump has thrown around could end up weighing on economic activity.
The group chose to keep signaling that future rate hikes would be gradual but be prepared to respond quickly to changes in the economic outlook.
Wall Street stocks finished lower on Wednesday following a midday reversal after Federal Reserve meeting minutes suggested the United States central bank could move more quickly than expected to reduce its balance sheet.
The Fed has been keeping the level of its balance sheet steady at $4.5 trillion, compared with less than $1 trillion before the financial crisis. The minutes showed that several Fed officials thought Trump's stimulus plans wouldn't likely begin before next year.
Members, however, mostly agreed that any meaningful fiscal stimulus and its effect on the economy would not likely start until the beginning of next year.
Reducing the balance sheet could have the same impact on the markets as a rate hike. " ... some participants and their business contacts saw downside risks to labor force and economic growth from possible changes to other government policies, such as those affecting immigration and trade".
The minutes showed that the Fed officials see more upside risks to the economic outlook, on the expectation of more expansionary fiscal policies and diminished risks from overseas economies. The Fed's dual mandates are to achieve maximum employment and moderate inflation. The personal consumption expenditures index, a measure of inflation watched by the Fed, rose 2.1 percent year-on-year in February, the largest gain in almost five years, while a core PCE index, which excludes volatile energy and food prices, rose 1.8 percent.
"No firm decisions have yet been made but it seems pretty clear now that reinvestment will be slowed".
The voting members of the Fed's policy committee said they expected headline inflation might rise a bit above the 2% target in the near term, but only temporarily.
The minutes show "several" of the hawks urged the Fed to raise rates at a faster pace since the central bank was on the cusp of meeting its 2% inflation goal.