FOMC Minutes: Key Excerpts
- Consistent with their judgment that a gradual approach to policy normalization remained appropriate, almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations. However, a few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases. A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations.
- Investors pointed to a number of uncertainties in the global outlook that may have contributed to the decline in stock prices, including ongoing trade tensions between the United States and China, growing concerns about the fiscal position of the Italian government and its broader implications for financial markets and institutions, and some worries about the outcome of the Brexit negotiations.
- The volatility in equity markets was accompanied by a rise in risk spreads on corporate debt, although the widening in risk spreads was not as notable as in some past stock market downturns.
- Over the intermeeting period, global investors focused on changes in U.S. equity prices and interest rates, ongoing trade tensions between the United States and China, and uncertainty regarding budget negotiations between the Italian government and the European Union.
- On the upside, household spending and business investment could expand faster than the staff projected, supported in part by the tax cuts enacted last year. On the downside, trade policies and foreign economic developments could move in directions that have significant negative effects on U.S. economic growth. Risks to the inflation projection also were seen as balanced.
- Participants observed that growth in business fixed investment slowed in the third quarter following several quarters of rapid growth. Some participants pointed to anecdotal evidence regarding higher tariffs and uncertainty about trade policy, slowing global demand, rising input costs, or higher interest rates as possible factors contributing to the slowdown.
- Participants commented on a number of risks and uncertainties associated with their outlook for economic activity, the labor market, and inflation over the medium term. A few participants indicated that uncertainty had increased recently, pointing to the high levels of uncertainty regarding the effects of fiscal and trade policies on economic activity and inflation. Some participants viewed economic and financial developments abroad, including the possibility of further appreciation of the U.S. dollar, as posing downside risks for domestic economic growth and inflation. A couple of participants expressed the concern that measures of inflation expectations would remain low, particularly if economic growth slowed more than expected. Several participants were concerned that the high level of debt in the nonfinancial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability, which could exacerbate the effects of a negative shock on economic activity. The potential for an escalation in tariffs or trade tensions was also cited as a factor that could slow economic growth more than expected.
- Foreign economic growth appeared to pick up in the third quarter, as a strong rebound in economic activity in several emerging market economies (EMEs) more than offset a slowdown in China and most advanced foreign economies (AFEs).
Click here to read the full comment.
