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Federal Reserve officials in December debated the risks to the U.S. economic outlook, with some concerned about low inflation and others pointing to robust growth that was about to get a further boost from tax cuts.

Most participants reiterated support for “continuing a gradual approach to raising the target range” for the benchmark policy rate, according to minutes of the Federal Open Market Committee’s Dec. 12-13 meeting released Wednesday in Washington.

U.S. central bankers raised interest rates by a quarter percentage point and penciled in three more hikes for 2018, according to the median estimate.

Fed officials discussed several risks that could result in a faster pace of increases.

“These risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level,” owing to fiscal stimulus or “accommodative” financial conditions, the minutes said.

Policy makers continued to wrestle over the outlook for inflation, the minutes showed. Economists were surprised in 2017 by the failure of wages and prices to rally despite a strengthening job market.

Even as unemployment dropped to 4.1 percent, the Fed’s preferred measure of inflation dipped to as low as 1.4 percent, before rebounding to 1.8 percent in the 12 months through November.

Yield Curve

Fed officials said the pace of rate hikes could be slower if inflation failed to move up toward their 2 percent target.

“While participants generally saw the risks to the economic outlook as roughly balanced, they agreed that inflation developments should be monitored closely,” the minutes said.

The yield curve, or differences between short and longer-term rates on benchmark Treasury securities, received some discussion at the December meeting.

Investors have raised concerns that the so-called flatness of the curve, where the spread between short- and long-term rates narrows, could portend a recession.

Fed officials “generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards,” the minutes said. “However, several participants thought that it would be important to continue to monitor the slope of the yield curve.”

A week after the FOMC meeting, lawmakers passed a $1.5 trillion cut in corporate and personal taxes.

Goldman Sachs Group Inc. economists estimate the changes will add 0.3 percentage point to growth this year and next. President Donald Trump signed the bill into law on Dec. 22.

Many Fed officials, the minutes said, expected the tax cuts to provide a lift to consumer spending and “a modest boost to capital spending.”

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

The policymaker argued that this is a time for the deficit to be shrinking, not growing.

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