Minutes released from the Federal Open Market Committee’s (FOMC) Nov. 6-7 meeting shed light on the agency’s decision to lower the federal funds rate by 25 basis points to a range of 4.5 to 4.75 percent. The minutes offer insight into the committee’s outlook on inflation, interest rates and housing, among other takeaways.
Committee members acknowledged the continued progress in lowering inflation, which remains above the 2 percent target, along with stronger-than-expected economic activity and steady consumer spending patterns as positive economic indicators. These factors suggest the U.S. labor markets are robust, real wages are rising, and household wealth is rising. However, financial strains continue to persist for low- and moderate-income households.
“The information available at the time of the meeting indicated that real gross domestic product had expanded solidly so far this year,” the FOMC stated in the minutes. “The pace of job gains had moderated since the beginning of the year, and the unemployment rate had moved up, on net, but remained low. Consumer price inflation was well below its year-earlier pace.”
Consumer price inflation — as measured according to the 12-month change in the price index for personal consumption expenditures (PCE) — decreased in August and September, the committee noted. Total PCE price inflation was 2.1 percent in September, and core PCE price inflation — which excludes changes in energy prices and many consumer food prices — was 2.7 percent.
The FOMC noted easing labor market conditions, including declining job vacancies and moderated wage growth, which align with its inflation objectives. However, financial markets have experienced volatility. Treasury yields rose significantly, driven by adjusted expectations of a slower pace of monetary easing. Borrowing costs for households and businesses increased, further tightening credit availability, particularly for small firms and commercial real estate.
As a result of these factors and considerations, the committee noted a change in the expected path of the federal funds rate and Treasury yields which could impact future rate cuts.
“The expected path of the federal funds rate implied by financial market quotes increased notably over the intermeeting period amid stronger-than-expected data releases pertaining to economic activity, somewhat higher-than-expected readings on inflation, and comments by some FOMC participants that were interpreted as signaling a more gradual approach to recalibrating the stance of monetary policy,” the FOMC stated. “Consistent with a higher expected path of the federal funds rate and a shift in investors’ perceptions of the balance of risks, nominal Treasury yields across the maturity spectrum increased significantly.”
The notable risks cited by the committee related to asset valuations and vulnerabilities in sectors like commercial real estate and high-leverage businesses did little to hinder the staff’s confidence in the financial stability of the markets under the Fed’s current approach to monetary policy.
“In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the committee stated.
Multiple meeting participants noted there is no preset course for monetary policy decisions, which must be based on indicators of how the economy is evolving over time. They stressed the importance of making this point clear as the Fed adjusts its policy stance.
“While emphasizing that monetary policy would be data dependent, many participants noted the volatility of recent economic data and highlighted the importance of focusing on underlying economic trends and the evolution of the outlook when assessing incoming information,” the committee stated.
Participants view recent disinflationary progress in non-housing segments as a sign that merchants are aware of consumer price sensitivity and therefore reluctant to increase prices. Some participants remarked that they expect the rate of housing price increases to slow as well although they remained somewhat elevated at the time of the meeting.