Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the Committee expected; they saw the new sentence in the third paragraph of the Committee’s statement–a sentence indicating that the case for an increase in the federal funds rate had strengthened but that the Committee had decided, for the time being, to wait for further evidence of continued progress toward its objectives– as reflecting this view.
Among the participants who supported awaiting further evidence of continued progress toward the Committee’s objectives, several stated that the decision at this meeting was a close call.
A substantial majority now viewed the near-term risks to the economic outlook as roughly balanced, with several of them indicating the risks from Brexit had receded. However, a few still judged that overall risks were weighted to the downside, citing various factors that included the possibility of weaker-than-expected growth in foreign economies, continued uncertainty associated with Brexit, the proximity of policy interest rates to the effective lower bound, or persistent headwinds to economic growth. Participants agreed that the Committee should continue to closely monitor inflation indicators and global economic and financial developments.
Against the backdrop of their economic projections, participants discussed whether available information warranted taking another step to reduce policy accommodation at this meeting. Participants generally agreed that the case for increasing the target range for the federal funds rate had strengthened in recent months. Many of them, however, expressed the view that recent evidence suggested that some slack remained in the labor market.
Members generally agreed that the case for an increase in the policy rate had strengthened. But, with some slack likely remaining in the labor market and inflation continuing to run below the Committee’s objective, a majority of members judged that the Committee should, for the time being, await further evidence of progress toward its objectives of maximum employment and 2 percent inflation before increasing the target range for the federal funds rate. It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.
With inflation continuing to run below the Committee’s 2 percent objective and few signs of increased pressure on wages and prices, most of these participants thought it would be appropriate to await further evidence of continued progress toward the Committee’s statutory objectives.
In their discussion of the outlook, participants considered the likelihood of, and the potential benefits and costs associated with, a more pronounced undershooting of the longer-run normal rate of unemployment than envisioned in their modal forecasts.
A number of participants noted that they expected the unemployment rate to run somewhat below its longer-run normal rate and saw a firming of monetary policy over the next few years as likely to be appropriate.
A couple of members emphasized that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the Committee had more scope to increase policy rates, if necessary, than to reduce them. Three members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.
Participants generally expected the unemployment rate to run somewhat below their estimates of its longer-run normal rate over the next couple of years, but they offered differing views about the extent of slack that currently remained in the labor market. Some participants pointed to the slowing in payroll gains and modest pickup in wages this year and judged that the labor market had little or no remaining slack.
Global financial conditions had improved somewhat in recent months. However, participants noted that economic growth in many foreign economies remained subdued, and inflation rates abroad generally continued to be quite low. Some participants continued to see important downside risks from abroad.
Recent readings on headline and core PCE price inflation had come in about as expected, and participants continued to anticipate that headline inflation would rise over the medium term to the Committee’s 2 percent objective. It was noted, however, that 12-month core PCE price inflation had been running at a steady rate below 2 percent, and several participants commented on factors that might be expected to restrain increases in inflation.
And for some Heisenberg Wednesday comic relief, a reader got this in their inbox this morning… complete with the text and the ad next to it: