FOMC Minutes Excerpt: Many Participants See Rates On Hold>

     WASHINGTON (MNI) - The following is an excerpt of the Federal Open 

Market Committee minutes describing committee's policy action, 

published Wednesday for the October meeting: 

     With regard to monetary policy beyond this meeting, most 

participants judged that the stance of policy, after a 25 basis point 

reduction at this meeting, would be well calibrated to support the 

outlook of moderate growth, a strong labor market, and inflation near 

the Committees symmetric 2 percent objective and likely would remain so 

as long as incoming information about the economy did not result in a 

material reassessment of the economic outlook. However, participants 

noted that policy was not on a preset course and that they would be 

monitoring the effects of the Committees recent policy actions, as well 

as other information bearing on the economic outlook, in assessing the 

appropriate path of the target range for the federal funds rate. A 

couple of participants expressed the view that the Committee should 

reinforce its postmeeting statement with additional communications 

indicating that another reduction in the federal funds rate was unlikely 

in the near term unless incoming information was consistent with a 

significant slowdown in the pace of economic activity. 

*** 

     Members agreed that, in determining the timing and size of future 

adjustments to the target range for the federal funds rate, the 

Committee would assess realized and expected economic conditions 

relative to its maximumemployment objective and its symmetric 2 percent 

inflation objective. They also agreed that those assessments would take 

into account a wide range of information, including measures of labor 

market conditions, indicators of inflation pressures and inflation 

expectations, and readings on financial and international developments. 

     With regard to the postmeeting statement, members agreed to update 

the language of the Committees description of incoming data to 

acknowledge that investment spending and U.S. exports had remained weak. 

In describing the monetary policy outlook, they also agreed to remove 

the act as appropriate language and emphasize that the Committee would 

continue to monitor the implications of incoming information for the 

economic outlook as it assessed the appropriate path of the target range 

for the federal funds rate. This change was seen as consistent with the 

view that the current stance of monetary policy was likely to remain 

appropriate as long as the economy performed broadly in line with the 

Committees expectations and that policy was not on a preset course and 

could change if developments emerged that led to a material reassessment 

of the economic outlook. 

***

     In their consideration of the monetary policy options at this 

meeting, most participants believed that a reduction of 25 basis points 

in the target range for the federal funds rate would be appropriate. In 

discussing the reasons for such a decision, these participants continued 

to point to global developments weighing on the economic outlook, the 

need to provide insurance against potential downside risks to the 

economic outlook, and the importance of returning inflation to the 

Committees symmetric 2 percent objective on a sustained basis. A couple 

of participants who were supportive of a rate cut at this meeting 

indicated that the decision to reduce the federal funds rate by 25 basis 

points was a close call relative to the option of leaving the federal 

funds rate unchanged at this meeting. 

     Many participants judged that an additional modest easing at this 

meeting was appropriate in light of persistent weakness in global growth 

and elevated uncertainty regarding trade developments. Nonetheless, 

these participants noted that incoming data had continued to suggest 

that the economy had proven resilient in the face of continued headwinds 

from global developments and that previous adjustments to monetary 

policy would continue to help sustain economic growth. In addition, 

several participants suggested that a modest easing of policy at this 

meeting would likely better align the target range for the federal funds 

rate with a variety of indicators used to assess the appropriate policy 

stance, including estimates of the neutral interest rate and the slope 

of the yield curve. A couple of participants judged that there was more 

room for the labor market to improve. Accordingly, they saw further 

accommodation as best supporting both of the Committees dual-mandate 

objectives. 

     Many participants continued to view the downside risks surrounding 

the economic outlook as elevated, further underscoring the case for a 

rate cut at this meeting. In particular, risks to the outlook associated 

with global economic growth and international trade were still seen as 

significant despite some encouraging geopolitical and trade-related 

developments over the intermeeting period. In light of these risks, a 

number of participants were concerned that weakness in business 

spending, manufacturing, and exports could spill over to labor markets 

and consumer spending and threaten the economic expansion. A few 

participants observed that the considerations favoring easing at this 

meeting were reinforced by the proximity of the federal funds rate to 

the ELB. In their view, providing adequate accommodation while still 

away from the ELB would best mitigate the possibility of a costly return 

to the ELB. 

     Many participants also cited the level of inflation or inflation 

expectations as justifying a reduction of 25 basis points in the federal 

funds rate at this meeting. Inflation continued to run below the 

Committees symmetric 2 percent objective, and inflationary pressures 

remained muted. Several participants raised concerns that measures of 

inflation expectations remained low and could decline further without a 

more accommodative policy stance. A couple of these participants, 

pointing to experiences in Japan and the euro area, were concerned that 

persistent inflation shortfalls could lead to a decline in longer-run 

inflation expectations and less room to reduce the federal funds rate in 

the event of a future recession. In general, the participants who 

justified further easing at this meeting based on considerations related 

to inflation viewed this action as helping to move inflation up to the 

Committees 2 percent objective on a sustained basis and to anchor 

inflation expectations at levels consistent with that objective. 

     Some participants favored maintaining the existing target range for 

the federal funds rate at this meeting. These participants suggested 

that the baseline projection for the economy remained favorable, with 

inflation expected to move up and stay near the Committees 2 percent 

objective. They also judged that policy accommodation was already 

adequate and, in light of lags in the transmission of monetary policy, 

preferred to take some time to assess the economic effects of the 

Committees previous policy actions before easing policy further. 

Several participants noted that downside risks had diminished over the 

intermeeting period and saw little indication that weakness in business 

sentiment was spilling over into labor markets and consumer spending. A 

few participants raised the concern that a further easing of monetary 

policy at this meeting could encourage excessive risk-taking and 

exacerbate imbalances in the financial sector. 

--MNI Washington Bureau; tel: +1 202-371-2121; email: 

jean.yung@marketnews.com 

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