FOMC Excerpt: Expect Low Infl Readings To Be Transitory-Text>

     WASHINGTON (MNI) - The following are excerpts from the Federal Open 

Market Committee minutes of the October 31-November 1 meeting, published 

Wednesday: 

     Some members expressed concerns about the outlook for inflation 

expectations and inflation; they emphasized that, in considering the 

timing of further adjustments in the federal funds rate, they would be 

evaluating incoming information to assess the likelihood that recent low 

readings on inflation were transitory and that inflation was on a 

trajectory consistent with achieving the Committees 2 percent objective 

over the medium term. Several other members, however, were reasonably 

confident that the economy and inflation would evolve in coming months 

such that an additional firming would likely be appropriate in the near 

term. 

**********

     Many participants judged that much of the recent softness in core 

inflation reflected temporary or idiosyncratic factors and that 

inflation would begin to rise once the influence of these factors began 

to wane. Most participants continued to think that the cyclical 

pressures associated with a tightening labor market were likely to show 

through to higher inflation over the medium term. 

     With core inflation readings continuing to surprise on the 

downside, however, many participants observed that there was some 

likelihood that inflation might remain below 2 percent for longer than 

they currently expected, and they discussed possible reasons for the 

recent short-fall. Several participants pointed to a diminished 

responsiveness of inflation to resource utilization, to the 

possibility that the degree of labor-market tightness was less than 

currently estimated, or to lags in the response of inflation to greater 

resource utilization as plausible explanations for the continued soft 

readings on inflation. A few noted that secular influences, such as the 

effect of technological innovation in disrupting existing business 

models, were likely offsetting cyclical upward pressure on inflation and 

contributing to belowtarget inflation. 

     In discussing the implications of these developments, several 

participants expressed concern that the persistently weak inflation data 

could lead to a decline in longer-term inflation expectations or may 

have done so already; they pointed to low market-based measures of 

inflation compensation, declines in some survey measures of inflation 

expectations, or evidence from statistical models suggesting that the 

underlying trend in inflation had fallen in recent years. In addition, 

the possibility was raised that monetary policy actions or 

communications over the past couple of years, while inflation was below 

the Committees 2 percent objective, may have contributed to a decline 

in longer-run inflation expectations below a level consistent with that 

objective. Some other participants, however, noted that measures of 

inflation expectations had remained stable this year despite the low 

readings on inflation and judged that this stability should support the 

return of inflation to the Committees objective. 

     ** MNI Washington Bureau: (202)371-2121 ** 

[TOPICS: MMUFE$,M$U$$$,MT$$$$]