Republican tax cuts may already be contributing to higher consumer spending, signalling that the new legislation could boost economic growth, some Federal Reserve officials said at a closed-door meeting in December.

Even before the tax bill's passage last month, traders were anticipating that Republicans would succeed in passing President Trump's signature legislation, driving up valuations of assets and household net worth, according to minutes of the central bank's Dec. 12-13 monetary-policy meeting released Wednesday. 

"A few participants noted that expectations of tax reform may have already raised consumer spending somewhat," according to the minutes, although "a number of participants expressed uncertainty about the magnitude of the effects."

Investors are looking for clues on whether Trump's tax cuts will fuel enough growth to spur faster inflation, which in turn could prompt the Fed to accelerate increases in borrowing costs to limit price increases. The central bank raised its target rate three times last year to a range of 1.25% to 1.5%, and some economists worry the Fed could hike rates too quickly, boosting consumer borrowing costs and potentially triggering a recession just as the economy gains momentum. 

On average, Fed officials are projecting three rate increases in 2018, though economists at Goldman Sachs Group Inc. and Deutsche Bank AG say the central bank may have to raise the target four times this year. The December meeting was Janet Yellen's last as chair, and future gatherings will be led by Jerome Powell, Trump's pick to replace her.

The tax cuts could "nudge the Fed in the direction of a faster tightening cycle," said Putri Pascualy, managing director and partner at Pacific Alternative Asset Management Co. in Irvine, California. "The wild card is really inflation."

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Stubbornly low inflation despite rising economic growth posed a conundrum for Yellen in 2017, and the minutes showed Fed officials expect the rate to climb "very close" to the central bank's target of 2% by 2019, before hitting the mark in 2020.

Charlie Ripley, an investment strategist at Allianz Investment Management in Minneapolis, said he saw a "slight hawkish tilt" in the minutes that could signal a faster pace of rate increases.

"We've seen the flat-line inflation numbers for a while now and this is the one puzzle the Fed is trying to figure out," Ripley said in a phone interview. "This might pose somewhat of a larger task for a Powell-led Fed as he tries to get a consensus view among Fed officials on the inflation outlook."

According to the minutes, many participants believe the cuts to corporate taxes will lead companies to boost capital spending, which could lead to "an expansion of potential output over the next few years."

"Participants saw the outlook for economic activity and the labor market as having remained strong or having strengthened since their previous meeting, in part reflecting a modest boost from the expected passage of the tax legislation," the minutes read.

The officials noted that some business contacts and respondents to surveys believe companies may be cautious about making new business investments in response to the tax cuts, instead using the cash windfall for corporate takeovers, debt reduction or stock buybacks.

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