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Comment: Minutes of December 10-11 FOMC meeting add little to the conversation

The minutes of the December 10-11 FOMC meeting did not add much to the conversation on the outlook for monetary policy. The contents of the Summary of Economic Projections (SEP) were published back on December 11 followed by Chair Jerome Powell’s press briefing. The two together laid out what the minutes reiterated:

  • The labor market is strong and there may be a bit more slack to draw in, especially for workers on the margins.
  • Downside risks to the economic outlook remain, but have retreated. And, yes, that still includes trade policy and slow growth for the global economy.
  • The three rate cuts in July, September, and October were judged sufficient for now to ensure the record expansion continues. A pause was appropriate to allow the lagged effects of monetary policy to catch up.
  • Inflation is low and why it remains stubbornly below target is not fully understood. However, the aforementioned lagged effects of the three rate cuts are expected to help bring the pace up over the medium term. Nonetheless, the FOMC will carefully monitor developments.
  • The FOMC voters were unanimous in the decision to keep rates on hold. There was little sign of active dissent among the FOMC participants who did not vote.  The worry that inflation is running too cool has not disappeared, nor has that that inflation expectations find the Fed’s inflation fighting credibility at risk. The minutes said, “Participants generally expressed concerns regarding inflation continuing to fall short of 2 percent. Although a number of participants noted that some of the factors currently holding down inflation were likely to prove transitory, various participants were concerned that indicators were suggesting that the level of longer-term inflation expectations was too low.” On the other side, “A few participants” worried about low rates encouraging “excessive risk-taking, which could exacerbate imbalances in the financial sector.” However, concerns were not enough at present to elicit another dissent.

Fresh in the minutes was a summary of topics the FOMC will discuss further. The minutes mentioned, “Various participants remarked on issues related to the implementation of monetary policy, highlighting topics for further discussion at future meetings. Among the topics mentioned were the potential role of a standing repo facility in an ample-reserves regime, the setting of administered rates, and the composition of the Federal Reserve’s holdings of Treasury securities over the longer run.” Some of these have already gotten at least some mulling over. The inclusion suggests the Committee may be closer to determining at least a few of the points under discussion.

The opening section on the review of the monetary policy framework was focused on some of the social aspects to come out of the Fed Listens events. Policymakers have made an effort in recent years to explain how the Fed is not just about Wall Street, but has concern about the impacts of monetary policy for Main Street. The minutes noted that monetary policy is a “blunt instrument” at a national level that cannot specifically address local needs and economic disparities. However, the topics of employment and inflation affect almost everyone, and giving regional concerns a hearing is an important part of what the Fed can do to ensure that monetary policy is appropriate now and in the future.

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