*(US) FOMC MINUTES FROM SEPT 16-17 MEETING: SEVERAL OFFICIALS CONCERNED ABOUT DOWNSIDE RISKS TO INFLATION; ELIMINATING EMPLOYMENT SLACK
MAY REQUIRE JOBLESS RATE BELOW LONG TERM NORMS Economic activity was expanding at a moderate pace. Although net exports remained soft, economic growth was broadly based. Members noted that recent global and financial market developments might restrain economic
activity somewhat as a result of the higher level of the dollar and possible effects of slower economic growth in China and in a number of emerging market and commodity-producing economies. Nevertheless, they still viewed the risks to U.S. economic activity
as nearly balanced, and they continued to expect that, with appropriate policy accommodation, economic activity would most likely continue to expand at a moderate pace.Members agreed that labor market conditions had improved considerably since earlier in the
year, with ongoing solid gains in payroll employment and the unemployment rate falling to a level quite close to their estimates of its longer-run normal rate. Members anticipated that economic activity was likely to continue to expand at a pace sufficient
to lead to a further reduction in underutilization of labor resources. Headline inflation continued to be held down by the effects of declines in energy and commodity prices, and the year-over-year increase in core PCE inflation remained below the Committee's
objective. Survey-based measures of longer-term inflation expectations had remained stable; market-based measures of inflation compensation had moved lower. Members anticipated that the declines in oil prices and the appreciation of the dollar over the intermeeting
period were likely to exert some additional downward pressure on inflation in the near term. Members expected inflation to rise gradually toward 2 percent over the medium term as the labor market improved further and the transitory effects of declines in energy
and import prices dissipated, but they agreed to continue to monitor inflation developments closely.In assessing whether economic conditions had improved sufficiently to initiate a firming in the stance of policy, many members said that the improvement in
labor market conditions met or would soon meet one of the Committee's criteria for beginning policy normalization. But some indicated that their confidence that inflation would gradually return to the Committee's 2 percent objective over the medium term had
not increased, in large part because recent global economic and financial developments had imparted some restraint to the economic outlook and placed further downward pressure on inflation in the near term. Most members agreed that their confidence that inflation
would move to the Committee's inflation objective would increase if, as expected, economic activity continued to expand at a moderate rate and labor market conditions improved further. Many expected those conditions to be met later this year, although several
members were concerned about downside risks to the outlook for real activity and inflation.Other factors important to the Committee's assessment of the inflation outlook were the expectation that the influences of lower energy and commodity prices on headline
inflation would abate, as had occurred in previous episodes, and that inflation expectations would remain stable. With energy and commodity prices expected to stabilize, members' projections of inflation incorporated a step-up in headline inflation next year.
However, several members saw a risk that the additional downward pressure on inflation from lower oil prices and a higher foreign exchange value of the dollar could persist and, as a result, delay or diminish the expected upturn in inflation. And, while survey
measures of longer-run inflation expectations remained stable, a couple of members expressed unease with the decline in market-based measures of inflation compensation over the intermeeting period.After assessing the outlook for economic activity, the labor
market, and inflation and weighing the uncertainties associated with the outlook, all but one member concluded that, although the U.S. economy had strengthened and labor underutilization had diminished, economic conditions did not warrant an increase in the
target range for the federal funds rate at this meeting. They agreed that developments over the intermeeting period had not materially altered the Committee's economic outlook. Nevertheless, in part because of the risks to the outlook for economic activity
and inflation, the Committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and bolstering members' confidence that inflation would gradually move up toward 2 percent over the medium
term. One member, however, preferred to raise the target range for the federal funds rate at this meeting, indicating that the current low level of real interest rates was not appropriate in the context of current economic conditions.Contacts in a number of
Districts were upbeat about prospects for the sector, citing strengthening sales, rising home prices, an upturn in household formations, and reports that buyers had accelerated purchases in anticipation of the possibility that mortgage rates might move higher
in the near term. Multifamily construction was particularly strong in a couple of Districts, but in another a shortage of lots was constraining builders' ability to meet strong demand for new single-family homes Some other participants, however, expressed
concerns about delaying the start of normalizing the target range for the federal funds rate much longer. For example, a significant delay risked an undesired buildup of inflationary pressures or economic and financial imbalances that would be costly to unwind
and that eventually could have adverse consequences for economic growth. In addition, a prompt decision to firm policy could provide a signal of confidence in the strength of the U.S. economy that might spur rather than restrain economic activity. These participants
preferred to begin policy firming soon, with most of them expecting that beginning the process before long would allow the target range for the federal funds rate to be increased gradually
MAY REQUIRE JOBLESS RATE BELOW LONG TERM NORMS Economic activity was expanding at a moderate pace. Although net exports remained soft, economic growth was broadly based. Members noted that recent global and financial market developments might restrain economic
activity somewhat as a result of the higher level of the dollar and possible effects of slower economic growth in China and in a number of emerging market and commodity-producing economies. Nevertheless, they still viewed the risks to U.S. economic activity
as nearly balanced, and they continued to expect that, with appropriate policy accommodation, economic activity would most likely continue to expand at a moderate pace.Members agreed that labor market conditions had improved considerably since earlier in the
year, with ongoing solid gains in payroll employment and the unemployment rate falling to a level quite close to their estimates of its longer-run normal rate. Members anticipated that economic activity was likely to continue to expand at a pace sufficient
to lead to a further reduction in underutilization of labor resources. Headline inflation continued to be held down by the effects of declines in energy and commodity prices, and the year-over-year increase in core PCE inflation remained below the Committee's
objective. Survey-based measures of longer-term inflation expectations had remained stable; market-based measures of inflation compensation had moved lower. Members anticipated that the declines in oil prices and the appreciation of the dollar over the intermeeting
period were likely to exert some additional downward pressure on inflation in the near term. Members expected inflation to rise gradually toward 2 percent over the medium term as the labor market improved further and the transitory effects of declines in energy
and import prices dissipated, but they agreed to continue to monitor inflation developments closely.In assessing whether economic conditions had improved sufficiently to initiate a firming in the stance of policy, many members said that the improvement in
labor market conditions met or would soon meet one of the Committee's criteria for beginning policy normalization. But some indicated that their confidence that inflation would gradually return to the Committee's 2 percent objective over the medium term had
not increased, in large part because recent global economic and financial developments had imparted some restraint to the economic outlook and placed further downward pressure on inflation in the near term. Most members agreed that their confidence that inflation
would move to the Committee's inflation objective would increase if, as expected, economic activity continued to expand at a moderate rate and labor market conditions improved further. Many expected those conditions to be met later this year, although several
members were concerned about downside risks to the outlook for real activity and inflation.Other factors important to the Committee's assessment of the inflation outlook were the expectation that the influences of lower energy and commodity prices on headline
inflation would abate, as had occurred in previous episodes, and that inflation expectations would remain stable. With energy and commodity prices expected to stabilize, members' projections of inflation incorporated a step-up in headline inflation next year.
However, several members saw a risk that the additional downward pressure on inflation from lower oil prices and a higher foreign exchange value of the dollar could persist and, as a result, delay or diminish the expected upturn in inflation. And, while survey
measures of longer-run inflation expectations remained stable, a couple of members expressed unease with the decline in market-based measures of inflation compensation over the intermeeting period.After assessing the outlook for economic activity, the labor
market, and inflation and weighing the uncertainties associated with the outlook, all but one member concluded that, although the U.S. economy had strengthened and labor underutilization had diminished, economic conditions did not warrant an increase in the
target range for the federal funds rate at this meeting. They agreed that developments over the intermeeting period had not materially altered the Committee's economic outlook. Nevertheless, in part because of the risks to the outlook for economic activity
and inflation, the Committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and bolstering members' confidence that inflation would gradually move up toward 2 percent over the medium
term. One member, however, preferred to raise the target range for the federal funds rate at this meeting, indicating that the current low level of real interest rates was not appropriate in the context of current economic conditions.Contacts in a number of
Districts were upbeat about prospects for the sector, citing strengthening sales, rising home prices, an upturn in household formations, and reports that buyers had accelerated purchases in anticipation of the possibility that mortgage rates might move higher
in the near term. Multifamily construction was particularly strong in a couple of Districts, but in another a shortage of lots was constraining builders' ability to meet strong demand for new single-family homes Some other participants, however, expressed
concerns about delaying the start of normalizing the target range for the federal funds rate much longer. For example, a significant delay risked an undesired buildup of inflationary pressures or economic and financial imbalances that would be costly to unwind
and that eventually could have adverse consequences for economic growth. In addition, a prompt decision to firm policy could provide a signal of confidence in the strength of the U.S. economy that might spur rather than restrain economic activity. These participants
preferred to begin policy firming soon, with most of them expecting that beginning the process before long would allow the target range for the federal funds rate to be increased gradually