The economy continues to make progress, but it wasn't sufficient to warrant an interest rate hike, according to the minutes of the Federal Open Market Committee's July 28-29 meeting, released Wednesday, which also showed that one member was ready to vote for an increase, but would wait for more data.
"The Committee concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met," the minutes state. "Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range. One member, however, indicated a readiness to take that step at this meeting but was willing to wait for additional data to confirm a judgment to raise the target range."
While "conditions for policy firming had not yet been achieved conditions were approaching that point."
Noting the economic progress, "some participants...viewed the economic conditions for beginning to increase the target range for the federal funds rate as having been met or were confident that they would be met shortly," the minutes said. "A few of these participants judged that the stance of monetary policy, including the extraordinarily low level of the federal funds rate and the current size of the Federal Reserve balance sheet, was very accommodative. A couple of others thought that an appreciable delay in beginning the process of normalization might result in an undesirable increase in inflation or have adverse consequences for financial stability. Some participants advised that progress toward the Committee's objectives should be viewed in light of the cumulative gains made to date without overemphasizing month-to-month changes in incoming data. It was also noted that a prompt start to normalization would likely convey the Committee's confidence in prospects for the economy."
The FOMC wanted the post-meeting statement to show the progress the economy made, while noting underutilization of labor resources had declined this year. The panel also wanted to note more recent declines in energy prices and reiterating it expected inflation to rise gradually toward 2% over the medium term.
The panel "also continued to see the risks to the outlook for economic activity and the labor market as nearly balanced."
"However, several participants contended that, despite the progress over the past few years, some noticeable margins of slack remained, citing as evidence the high number of workers not actively searching for jobs but available and interested in work as well as the high share of employees working part time for economic reasons compared with pre-recession levels," the minutes state.
While the underutilization of labor resources improved, "Most members saw room for some additional progress in reducing labor market slack, although several viewed current labor market conditions as at or very close to those consistent with maximum employment."
Assuming economic activity progressed as expected, "many" on the panel saw the underutilization disappearing in the near term. "Several" panelists opined "labor market conditions consistent with maximum employment could take longer to achieve, noting, for example, the lack of convincing signs of accelerating wages, which might be signaling that the natural rate of unemployment could currently be lower than they previously thought."
Most of the committee members expect the "downward pressure" from lower energy prices and "past dollar appreciation" would subside.
Other members voiced concern about "downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices." Meanwhile, concern that "higher rates of resource utilization appeared to have had only very limited effects to date on wages and prices, and underscored the uncertainty surrounding the inflation process as well as the role and dynamics of inflation expectations."
"Almost all members" said "they would need to see more evidence that economic growth was sufficiently strong and labor markets conditions had firmed enough for them to feel reasonably confident that inflation would return to the Committee's longer-run objective over the medium term."
The staff economic forecast for the meeting "was broadly similar" to the one readied for the June meeting, the minutes noted, with real gross domestic product seen accelerating in the second half.
"The staff's forecast for inflation was revised down, particularly in the near term, as the decline in crude oil prices over the intermeeting period was expected to result in lower consumer energy prices," according to the minutes. "Although energy prices and non-oil import prices were expected to begin rising steadily next year, the staff continued to project that inflation would be below the Committee's longer-run objective of 2 percent over 2016 and 2017. Inflation was anticipated to move up gradually to 2 percent there-after, with inflation expectations in the longer run assumed to be consistent with the Committee's objective and slack in labor and product markets projected to have waned."
