FOMC minutes: Arguments for both sides, a close call

The minutes from the latest meeting of the Federal Reserve showed that the decision to keep rates unchanged was a close call. Back then, the Federal Reserve, as mostly expected, left interest rate unchanged at 0.25 - 0.50% and the central bank mentioned in the statement that the case for an increase in the federal funds rate has strengthened" but they decided to wait for more information. Three members dissented from the majority and asked for a rate hike. 

According to the minutes, it was noted that a reasonable argument could be made either for an increase in interest rates at the meeting or for waiting for some additional information on the labor market and inflation. Among the members that supported awaiting further evidence, “several stated that the decision at this meeting was a close call.”

The next FOMC meeting will be November 2 (1 week before US presidential elections) and then at December 14 (will include a press conference and FOMC projections).  

Key Quotes: 

“After assessing the outlook for economic activity, the labor market, and inflation, as well as the risks around that outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent at this meeting. Members generally agreed that the case for an increase in the policy rate had strengthened. But, with some slack likely remaining in the labor market and inflation continuing to run below the Committee's objective, a majority of members judged that the Committee should, for the time being, await further evidence of progress toward its objectives of maximum employment and 2 percent inflation before increasing the target range for the federal funds rate. It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.”

“A couple of members emphasized that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the Committee had more scope to increase policy rates, if necessary, than to reduce them.”

“Three members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting. They cautioned that postponing policy firming for too long could push the unemployment rate markedly below its longer-run normal rate over the next few years. If so, the Committee might then need to tighten policy more rapidly, thereby posing risks to continued economic expansion. A couple of these members expressed concern about the potential adverse effects on the credibility of the Committee's policy communications if the next step in the gradual removal of accommodation was further postponed.”

“Among the participants who supported awaiting further evidence of continued progress toward the Committee's objectives, several stated that the decision at this meeting was a close call. Some participants believed that it would be appropriate to raise the target range for the federal funds rate relatively soon if the labor market continued to improve and economic activity strengthened, while some others preferred to wait for more convincing evidence that inflation was moving toward the Committee's 2 percent objective. Some participants noted the importance of clearly communicating to the public the conditions that would warrant an increase in the policy rate.”