FOMC Excerpt: Firming Inflation Gives Some Reassurance-Text>

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

Market Committee minutes of the May 1 - 2 meeting, published Wednesday:

     The 12-month changes in overall and core PCE prices moved up in 

March, to 2 percent and 1.9 percent, respectively. Most participants 

viewed the recent firming in inflation as providing some reassurance 

that inflation was on a trajectory to achieve the Committees symmetric 

2 percent objective on a sustained basis. In particular, the recent 

readings appeared to support the view that the downside surprises last 

year were largely transitory. Some participants noted that inflation was 

likely to modestly overshoot 2 percent for a time. However, several 

participants suggested that the underlying trend in inflation had 

changed little, noting that some of the recent increase in inflation may 

have represented transitory price changes in some categories of health 

care and financial services, or that various measures of underlying 

inflation, such as the 12-month trimmed mean PCE inflation rate from the 

Federal Reserve Bank of Dallas, remained relatively stable at levels 

below 2 percent. In discussing the outlook for inflation, many 

participants emphasized that, after an extended period of low inflation, 

the Committees longer-run policy objective was to return inflation to 

its symmetric 2 percent goal on a sustained basis. Many saw tight 

resource utilization, the pickup in wage increases and nonlabor input 

costs, and stable inflation expectations as supporting their projections 

that inflation would remain near 2 percent over the medium term. But a 

few cautioned that, although market-based measures of inflation 

compensation had moved up over recent months, in their view these 

measures, as well as some survey-based measures, remained at levels 

somewhat below those that would be consistent with an expectation of 

sustained 2 percent inflation as measured by the PCE price index. 

***

     In their consideration of monetary policy over the near term, 

participants discussed the implications of recent economic and financial 

developments for the outlook for economic growth, labor market 

conditions, and inflation and, in turn, for the appropriate path of the 

federal funds rate. All participants expressed the view that it would be 

appropriate for the Committee to leave the target range for the federal 

funds rate unchanged at the May meeting. Participants concurred that 

information received during the intermeeting period had not materially 

altered their assessment of the outlook for the economy. Participants 

commented that above-trend growth in real GDP in recent quarters, 

together with somewhat higher recent inflation readings, had increased 

their confidence that inflation on a 12-month basis would continue to 

run near the Committees longer-run 2 percent symmetric objective. That 

said, it was noted that it was premature to conclude that inflation 

would remain at levels around 2 percent, especially after several years 

in which inflation had persistently run below the Committees 2 percent 

objective. In light of subdued inflation over recent years, a few 

participants observed that adjustments in the stance of policy should 

take account of the possibility that longer-term inflation expectations 

have drifted a bit below levels consistent with the Committees 2 

percent inflation objective. Most participants judged that if incoming 

information broadly confirmed their current economic outlook, it would 

likely soon be appropriate for the Committee to take another step in 

removing policy accommodation. Overall, participants agreed that the 

current stance of monetary policy remained accommodative, supporting 

strong labor market conditions and a return to 2 percent inflation on a 

sustained basis. 

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

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