–‘Majority’ Say Likely No 2019 Rate Changes; ‘Some’ Say Maybe Hike
–Risks Roughly Balanced; ‘Significant Uncertainties’ and ‘Patient’
WASHINGTON (MaceNews) – The minutes of last month’s Federal Open Market Committee meeting Wednesday confirmed the participants’ rope-a-dope policy stance, waiting for economy’s uncertainties to wear out before deciding their next move.
With risks roughly balanced, the majority of Federal Reserve Board members thought it likely there would be no rate moves for the balance of the year while a minority – “some”as described in the minutes – could envisage a rate hike before year end.
“Several” said new data and changes in risk assessment could someday move rates in “either direction,” the closest they came to suggesting a possibility of any rate cuts.
The major player on the economic landscape remained “significant uncertainty.”
The following is an excerpt from the participants’ discussion as related by the minutes, with boldfacing added:
Participants also noted significant uncertainties surrounding their economic outlooks, including those related to global economic and financial developments. In light of these uncertainties as well as continued evidence of muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Several participants observed that the characterization of the Committee’s approach to monetary policy as “patient” would need to be reviewed regularly as the economic outlook and uncertainties surrounding the outlook evolve. A couple of participants noted that the “patient” characterization should not be seen as limiting the Committee’s options for making policy adjustments when they are deemed appropriate. With regard to the outlook for monetary policy beyond this meeting, a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year. Several of these participants noted that the current target range for the federal funds rate was close to their estimates of its longer-run neutral level and foresaw economic growth continuing near its longer-run trend rate over the forecast period. Participants continued to emphasize that their decisions about the appropriate target range for the federal funds rate at coming meetings would depend on their ongoing assessments of the economic outlook, as informed by a wide range of data, as well as on how the risks to the outlook evolved. Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments. Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer- run trend rate, they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year. Several participants expressed concerns that the public had, at times, misinterpreted the medians of participants’ assessments of the appropriate level for the federal funds rate presented in the SEP as representing the consensus view of the Committee or as suggesting that policy was on a preset course. Such misinterpretations could complicate the Committee’s communications regarding its view of appropriate monetary policy, particularly in circumstances when the future course of policy is unusually uncertain. Nonetheless, several participants noted that the policy rate projections in the SEP are a valuable component of the overall information provided about the monetary policy outlook. The Chair noted that he had asked the subcommittee on communications to consider ways to improve the information contained in the SEP and to improve communications regarding the role of the federal funds rate projections in the SEP as part of the policy process. Participants also discussed alternative interpretations of subdued inflation pressures in current economic circumstances and the associated policy implications. Several participants observed that limited inflationary pressures during a period of historically low unemployment could be a sign that low inflation expectations were exerting downward pressure on inflation relative to the Committee’s 2 percent inflation target; in addition, subdued inflation pressures could indicate a less tight labor market than suggested by common measures of resource utilization. Consistent with these observations, several participants noted that various indicators of inflation expectations had remained at the lower end of their historical range, and a few participants commented that they had recently revised down their estimates of the longer-run unemployment rate consistent with 2 percent inflation. In light of these considerations, some participants noted that the appropriate response of the federal funds rate to signs of labor market tightening could be modest provided that signs of inflation pressures continued to be limited. Some participants regarded their judgments that the federal funds rate was likely to remain on a very flat trajectory as reflecting other factors, such as low estimates of the longer-run neutral real interest rate or risk management considerations. A few participants observed that the appropriate path for policy, insofar as it implied lower interest rates for longer periods of time, could lead to greater financial stability risks. However, a couple of these participants noted that such financial stability risks could be addressed through appropriate use of countercyclical macroprudential policy tools