Summary of FOMC meeting: Most thought inflation risks could require additional rate hikes

<p>The Federal Reserve meeting minutes of 4 the July 2023 meeting:</p><ul><li>Uncertainty of U.S. economic outlook remains elevated; future Federal Reserve policy decisions to be driven by the totality of data from the July 25-26 meeting.</li><li>Most participants said inflation risks could require further interest rate hikes.</li><li>A number of participants warned of risks of accidentally tightening policy too much.</li><li>A couple of participants favored holding interest rates steady at the July meeting.</li><li>A number of participants saw economic risks becoming more balanced.</li><li>Most participants saw continued 'significant' upside inflation risks.</li><li>Participants said inflation was 'unacceptably high,' and more evidence is needed to be confident that price pressures are ebbing.</li><li>Participants said a gradual slowdown in economic activity appeared to be happening.</li><li>Participants still saw below-trend growth and a softer labor market as necessary for restoring economic balance.</li><li>Amid uncertainty about monetary policy lags, participants said rate hikes are working as intended.</li><li>The banking system is 'sound and resilient,' but tighter credit conditions are likely to weigh on the economy.</li><li>Staff no longer see the economy entering a mild recession this year and now predict below-trend growth in 2024 and 2025.</li><li>Participants said the labor market is still 'very tight,' although signs are emerging that labor demand is in better balance.</li></ul><p>Looking at the Participant's views on current conditions and economic outlook and organizing by conviction showed:</p><p>1. Unanimous Views:</p><ul><li>Economic activity has been expanding at a moderate pace.</li><li>The U.S. banking system is sound and resilient.</li><li>The extent of the effects of tighter credit conditions on economic activity, hiring, and inflation remains uncertain.</li><li>All participants agreed on the continuation of reducing the Federal Reserve's securities holdings.</li></ul><p>2. Majority/Many Participants:</p><ul><li>Real GDP growth showed resilience and momentum.</li><li>A gradual slowdown in economic activity is in progress due to monetary policy tightening.</li><li>Monetary policy tightening is working as intended.</li><li>Inflation remains above the Committee's 2% objective.</li><li>Almost all participants judged it appropriate to raise the target range for the federal funds rate at the meeting.</li><li>Most participants saw significant upside risks to inflation.</li></ul><p>3. Some Participants:</p><ul><li>Observed that recent increases in home prices suggest the housing sector's response to monetary policy may have peaked.</li><li>Commented on conditions that could lead to higher or lower economic activity in the business sector.</li><li>Noted that significant disinflationary pressures had yet to become apparent in core services excluding housing.</li><li>Emphasized the need for banks to be ready to use Federal Reserve liquidity facilities.</li><li>Commented on the continued downside risks to economic activity and upside risks to the unemployment rate.</li></ul><p>4. A Few/Several Participants:</p><ul><li>Commented on the vulnerabilities of the CRE market and the ongoing weakness of manufacturing output.</li><li>Observed that growth in payrolls had slowed but continued to exceed values consistent with an unchanged unemployment rate.</li><li>Commented that significant disinflationary pressures were not yet apparent in core services excluding housing.</li><li>Noted the susceptibility of some nonbank financial institutions to runs or instability.</li><li>A couple of participants favored leaving the target range for the federal funds rate unchanged or could have supported such a proposal.</li></ul><p>5. General Observations:</p><ul><li>Participants discussed the uncertainty about the effects of monetary policy on the economy.</li><li>They stressed the need for more data to be confident about the path of inflation.</li><li>Participants emphasized the importance of clear communication about the Committee's approach.</li><li>They discussed risk-management considerations for future policy decisions.</li></ul>

This article was written by Greg Michalowski at www.forexlive.com.