Trade Gap an Issue at the Fed

The Federal Reserve’s policy-setting panel spent part of its September gathering discussing the implications of the United States’ massive trade deficit, according to minutes of the meeting that were disclosed Friday.

“Some policymakers noted that domestic demand in several major U.S. trading partners was relatively weak and that aggregate demand in those economies was being sustained importantly by exports to the United States,” according to the minutes of the Federal Open Market Committee’s Sept. 21 meeting.

“That pattern was contributing to a worrisome further widening of the U.S. trade and current account balances and the committee discussed the significance of wide external deficits and various adjustments that might occur in the process of their return to more sustainable levels,” the minutes said.

The Fed’s disclosure of its discussion of trade and the current account -- which includes trade and investment flows -- comes as the dollar is sagging in the foreign exchange mar- kets.

Despite good data on U.S. October employment and November consumer sentiment, many foreign exchange traders harbor worries about the U.S. current account gap, which was a record $166.18 billion in the April-to-June quarter, the latest data available.

Although the committee in September voted to raise interest rates for the third meeting in a row and expected further policy firming ahead, the minutes said, “in the view of many members, policy actions would need to be increasingly keyed to incoming data.”

“The expansion evidently was resilient and self-sustaining and appeared no longer to require the unusual degree of monetary stimulus that had previously been necessary,” the minutes said.

In their discussion of the economy, committee members were encouraged that household spending was likely to expand “at a solid pace going forward” and that inflation concerns seemed “well-contained.”