Fed on lookout for recession but still sees strong economy -minutes

Federal Reserve expects to keep raising interest rates and is watching trade tensions minutes show

The possibility of a full-blown trade war has forced some companies to pause investment plans, the Federal Reserve said Thursday.

USA central bankers are trying to keep the economy on a sustainable path as growth gets a boost from tax cuts and additional government spending, with a "few" Fed officials saying in the minutes that fiscal policy "posed an upside risk" to the outlook.

USA central bankers discussed whether recession lurked around the corner and expressed concerns global trade tensions could hit an economy that by most measures looked strong, minutes of the Federal Reserve's last policy meeting on June 12-13 released on Thursday showed.

The Trump administration has slapped tariffs on aluminum and steel products and threatened levies on more products from major partners including Mexico, Canada, Europe and China, on whom tariffs on $34 billion of goods are scheduled to go into force early Friday.

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Minutes of the Fed's March meeting also showed that officials saw trade rifts between the USA and China as risks to the economy's growth.

Monetary policy remains on course, despite worries about a global trade war, triggered by escalating retaliatory tariffs.

In June, the Fed raised short-term interest rates for the second time this year and expects to increase rates twice more before the end of the 2018.

Despite those risks, "the economy is doing very well", as Chairman Jerome Powell told reporters after the decision.

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In the Fed's latest projection, the neutral rate stood at 2.9 percent.

"[Many contacts] expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and overseas, on future investment activity", the text, which was released on Thursday, said. Officials have said they will tolerate a slight overshoot to bolster inflation expectations after years of being under the target.

The minutes said US central bankers debated the amount of labor-market slack left in the economy, with "several" participants saying "there was further scope for a strong labor market to continue to draw individuals into the workforce". Fed officials also increased their projection for the number of rate hikes they plan to make this year from three to four.

"We continue to expect that fiscal stimulus will push the unemployment rate lower over time and lead the Fed to hike rates two more times this year, in September and December", said Barclays economist Michael Gapin.

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