Participants’ Views on Current Conditions and the
Economic Outlook
- Rate setting committee’s position was to proceed carefully
- all participants agreed policy decisions at every meeting would continue to be based on totality of incoming information
- all participants judged it appropriate to maintain target interest rate at 5.25% – 5.5%
- Real GDP expanded strongly in Q3, driven by a surge in consumer spending.
- Despite robust growth, participants see aggregate demand and supply coming into better balance due to restrictive monetary policy and normalizing supply conditions.
- Labor market remains tight but has eased, partly due to recent increases in labor supply.
- Current monetary policy is restrictive, putting downward pressure on economic activity and inflation.
- Financial conditions have significantly tightened in recent months.
- Inflation has moderated over the past year but remains high and above the 2% goal.
- A period of below-potential GDP growth and further softening in labor market conditions is likely needed to bring inflation down.
- Consumer spending data has been stronger than expected, likely due to a strong labor market and solid household balance sheets.
- Some participants noted financial pressures on low- and moderate-income households due to high prices and tight credit conditions.
- Several participants observed rising delinquencies on auto loans and credit cards among these households.
- Some participants reported a weaker consumer demand picture than indicated by aggregate data.
- Several participants suggested that repeated upside surprises in spending data could indicate sustainable momentum.
- A couple of participants theorized that households might have more financial resources than previously thought.
- A few participants noted that housing sector activity has flattened, likely due to rising mortgage rates.
- Business fixed investment was flat in Q3, with conditions varying across industries and Districts.
- Some participants noted benefits for businesses from improved hiring ability, supply chains, and reduced input costs.
- A few participants reported difficulties for businesses in passing on cost increases to customers.
- Several participants commented on the resolution of the United Auto Workers strike reducing business-sector uncertainty.
- Several participants noted the impact of higher interest rates on businesses, with firms cutting or delaying investment plans.
- A few participants highlighted challenges for small businesses due to tighter financial and credit conditions.
- A few participants mentioned the impact of higher interest rates on the agricultural sector.
- The labor market remains tight, with strong payroll growth and a low unemployment rate.
- Labor supply and demand are coming into better balance, with labor force participation rising, especially among women, and immigration boosting labor supply.
- A few participants expressed concern over the sustainability of increased labor supply.
- Various measures indicate some easing in labor demand, including lower job openings and quits rates.
- The pace of nominal wage increases has continued to moderate.
- A few participants noted that nominal wages are still rising at rates inconsistent with the 2% inflation objective.
- Inflation has moderated, with core PCE price inflation measures declining.
- Participants noted limited progress in reducing core services inflation excluding housing.
- Longer-term inflation expectations remain well anchored.
- Inflation remains well above the 2% objective, continuing to harm businesses and households.
- Financial conditions have tightened due to a substantial increase in longer-term Treasury yields.
- Many participants observed that the rise in longer-term yields was driven by an increase in term premiums on Treasury securities.
- Some participants suggested the rise in yields might also reflect expectations for a higher federal funds rate path.
- Participants generally noted high uncertainty in the economic outlook.
- Upside risks to economic activity include the persistence of factors behind strong spending.
- Downside risks include larger-than-expected effects of policy tightening and tighter financial conditions.
- Upside risks to inflation include the possibility of stalled disinflation or reacceleration of inflation.
- Downside risks to economic activity include potential disruptions to global oil markets.
- Participants generally agreed that the stance of monetary policy should remain restrictive to reduce inflation.
- All participants judged it appropriate to maintain the federal funds rate at 5¼ to 5½ percent.
- Further tightening of monetary policy may be needed if progress toward the inflation objective is insufficient.
- Participants stressed the importance of clear communication about their data-dependent approach.
- All participants agreed that policy should remain restrictive until inflation is sustainably moving toward the objective.
- Several participants commented on the recent decline in the use of the ON RRP facility.
- Participants discussed risk-management considerations, noting more balanced risks to achieving the Committee’s goals.
- Most participants continued to see upside risks to inflation.
- Many participants noted downside risks to economic activity, including potential effects on aggregate demand and the CRE sector.
Parsing and organizing according to the degree of consensus:
All Participants:
- Agreed that monetary policy should remain restrictive until inflation sustainably moves towards the Committee’s objective.
- Judged maintaining the federal funds rate at 5¼ to 5½ percent as appropriate.
- Agreed on the necessity of reducing the Federal Reserve’s securities holdings.
- Agreed that every policy decision should be based on incoming information and its implications for the economic outlook and risk balance.
Most Participants:
- Continued to see upside risks to inflation, including potential prolonged imbalances in aggregate demand and supply.
Many Participants:
- Commented on the significant tightening of financial conditions due to higher long-term yields.
- Observed the contribution of term premiums to the rise in longer-term Treasury yields.
- Noted downside risks to economic activity, including larger-than-expected effects of tightening financial and credit conditions.
Several Participants:
- Noted potential cyber risks and the importance of readiness for such threats.
- Commented on the recent decline in the use of the ON RRP facility.
- Emphasized the importance of banks being prepared to use Federal Reserve liquidity facilities.
Some Participants:
- Noted benefits for businesses from improved hiring ability, supply chains, and reduced input costs.
- Reported difficulties for businesses in passing on cost increases to customers.
- Expressed concern over the sustainability of increased labor supply.
- Highlighted challenges for small businesses due to tighter financial and credit conditions.
A Few Participants:
- Noted nominal wages still rising at rates above those consistent with the 2% inflation objective.
- Expressed concern over the recent pace of increases in labor supply.
- Discussed the importance of monitoring Treasury market functioning and hedge fund leverage.
- Observed that the process of balance sheet runoff could continue even after reducing the federal funds rate target range.
This article was written by Greg Michalowski at www.forexlive.com. Source