Emphasis on 'economic uncertainty' in Fed minutes draws attention

The minutes from the U.S. Federal Reserve's (Fed) latest meeting, where interest rates were held steady, revealed that high uncertainty regarding the economic outlook has pushed the bank to remain cautious.

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Emphasis on 'economic uncertainty' in Fed minutes draws attention

The Fed has released the minutes from the Federal Open Market Committee (FOMC) meeting held on September 19-20.

The minutes of the latest meeting, where the policy rate was left unchanged at the 22-year high range of 5.25-5.50 percent, showed that while debates continue over whether further interest rate hikes are needed, high uncertainty has pushed the bank to be cautious.

The minutes stated, "A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some others judged that it might not be necessary to increase rates further."

The minutes noted that all participants agreed the Committee was "in a position to proceed carefully," and emphasized that policy decisions at each meeting would continue to be based on the totality of incoming information and its implications for the economic outlook and the balance of risks.

ECONOMIC PATH REMAINS HIGHLY UNCERTAIN

The minutes pointed out that there is still a high degree of uncertainty regarding the general economic outlook, noting that a new source of uncertainty is related to the automotive workers' strike, and that many participants observed that an intensification of the strike poses both an upside risk to inflation and a downside risk to economic activity.

The bank's minutes stated that a majority of participants also drew attention to upside risks stemming from rising energy prices, which could reverse some of the recent decline in inflation, and the risk that inflation could be more persistent than expected.

The minutes mentioned that some participants pointed to downside risks to economic activity, including the possibility that credit conditions could tighten more than expected if the domestic banking sector experiences further stress, and also touched upon the possibility of the economic slowdown in China dampening global economic growth and the potential for a prolonged U.S. government shutdown.

The minutes recorded that some participants observed difficulties in assessing the state of the economy because some data continue to be volatile and subject to large revisions.

The Fed minutes included the statement, "The vast majority of participants continued to assess that the future path of the economy was highly uncertain."

MONETARY POLICY MUST REMAIN RESTRICTIVE FOR SOME TIME

The minutes stated that participants generally held the view that with the restrictive stance of monetary policy, the risks to achieving the Committee's goals had become more "two-sided," but emphasized that because inflation remains well above the long-term target and the labor market remains tight, most participants continue to see upside risks to inflation.

The minutes noted, "All participants agreed that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective."

The bank's minutes reported that participants generally emphasized the importance of balancing the risk of overtightening against the risk of undertightening.

News Source: AA