WASHINGTON — Many Federal Reserve policymakers in their September meeting worried over whether recent low inflation readings this year were transitory and some said they wanted to feel more confident that inflation was moving higher before raising interest rates again. Yet at the same time, others expressed concern over upside risks for inflation given the tightness of the labor market, minutes of the meeting showed Wednesday.
The account highlights the range of opinions on the Federal Open Market Committee after their preferred measure of inflation, the core personal consumption expenditures price index, decelerated from a 1.9% annual pace earlier this year to just 1.4% in August.
"Many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged," the account of the Sept. 19-20 meeting said.
But, "Several others noted that, in light of the uncertainty around their outlook for inflation, their decision on whether to take such a policy action would depend importantly on whether the economic data in coming months increased their confidence that inflation was moving up toward the Committees objective," the minutes said.
"A few participants," which includes nonvoters on the FOMC, "thought that additional increases in the federal funds rate should be deferred until incoming information confirmed that the low readings on inflation this year were not likely to persist and that inflation was clearly on a path toward the Committees symmetric 2 percent objective over the medium term."
The Fed kept its key policy rate steady to a target range of 1.00% to 1.25% at the September meeting while launching its planned balance sheet reduction program. The minutes showed that all officials though it was appropriate to hold rates steady and "nearly all" supported saying in their post-meeting statement that "a gradual approach to increasing the federal funds rate will likely be warranted."
Still, "many participants" expressed concern that the low inflation readings might reflect not only transitory factors, "but also the influence of developments that could prove more persistent," and concluded that hitting the Fed's 2% target "might take somewhat longer than they anticipated earlier."
"It was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted," the minutes said, adding that a few officials thought no more hikes were called for in the near term or that the upward trajectory for the fed funds rate "might appropriately be quite shallow."
Among the voters, some emphasized that they would be "evaluating incoming information to assess the likelihood that recent low readings on inflation were transitory and that inflation was again on a trajectory consistent with achieving the Committee's 2 percent objective over the medium term."
Officials cited the tight labor market as supporting inflation over the medium term. Most officials said they expected wage increases to pick up as the labor market strengthened further, and a couple of them "cautioned that a broader acceleration in wages may already have begun," the minutes said.
"Many participants continued to believe that the cyclical pressures associated with a tightening labor market or an economy operating above its potential were likely to show through to higher inflation over the medium term," the minutes said.
Judging the economy more broadly, Fed officials noted that the expansion was evolving mostly as expected and even the unusually destructive hurricane season won't have any material impact over the medium term.
While higher prices for gasoline and other items were likely to boost inflation temporarily, and storm-related disruptions could hold down GDP growth in the third quarter, officials saw little change in their outlook for growth and the labor market.
Stock prices were higher and long-term interest rates and the exchange rate of the dollar were declining between the July and September FOMC meetings, officials noted, creating accommodative financial conditions. That drew the attention of a couple officials, who said such easy conditions over time could pose risks to financial stability.
