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November FOMC minutes: Rate setting committees position was to proceed carefully

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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.

SUMMARY:

The full report can be found HERE. Overall, the meeting minutes are a compilation of different views in what is considered an economy that continues to grow with above-the-norm inflation and strong employment. Having said that there is a lot of uncertainty given the sharp rise in rates over the last couple of years. As a result, there will be a little bit of something for everyone. Nevertheless the commentary is a bit more dovish than what most expected especially before the CPI and jobs reports.

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