FOMC Minutes Excerpt: 'Several' Ready to Move on Bal Sheet in July>

--'Some' Want More Info Infl Decline Transitory Before Another Hike

--'Some Others' Worry Tightening Labor Mkt Risks Infl Overshoot

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

Market Committee minutes describing committee's policy action, 

published Wednesday for the July 25-26 meeting: 

     In their discussion of monetary policy, participants reaffirmed 

their view that a gradual approach to removing policy accommodation was 

likely to remain appropriate to promote the Committees objectives of 

maximum employment and 2 percent inflation. Participants commented on a 

number of factors that would influence their ongoing assessments of the 

appropriate path for the federal funds rate. Most saw the outlook for 

economic activity and the labor market as little changed from their 

earlier projections and continued to anticipate that inflation would 

stabilize around the Committees 2 percent objective over the medium 

term. However, some participants expressed concern about the recent 

decline in inflation, which had occurred even as resource utilization 

had tightened, and noted their increased uncertainty about the outlook 

for inflation. They observed that the Committee could afford to be 

patient under current circumstances in deciding when to increase the 

federal funds rate further and argued against additional adjustments 

until incoming information confirmed that the recent low readings on 

inflation were not likely to persist and that inflation was more clearly 

on a path toward the Committees symmetric 2 percent objective over the 

medium term. In contrast, some other participants were more worried 

about risks arising from a labor market that had already reached full 

employment and was projected to tighten further or from the easing in 

financial conditions that had developed since the Committees policy 

normalization process was initiated in December 2015. They cautioned 

that a delay in gradually removing policy accommodation could result in 

an overshooting of the Committees inflation objective that would likely 

be costly to reverse, or that a delay could lead to an intensification 

of financial stability risks or to other imbalances that might prove 

difficult to unwind. One participant stressed that the risks both to the 

Committees inflation objective and to financial stability would require 

careful monitoring. This participant expressed the view that a gradual 

approach to removing policy accommodation would likely strike the 

appropriate balance between promoting the Committees inflation and full 

employment objectives and mitigating financial stability concerns. 

     A number of participants also commented that the appropriate pace 

of normalization of the federal funds rate would depend on how financial 

conditions evolved and on the implications of those developments for the 

pace of economic activity. Among the considerations mentioned were the 

extent of current downward pressure on longer-term yields arising from 

the Federal Reserves asset holdings and how this pressure would 

diminish over time as balance sheet normalization proceeded, the 

strength and degree of persistence of other domestic and global factors 

that had contributed to the easing of financial conditions and elevated 

asset prices, and whether and how much the neutral rate of interest 

would rise as the economy continued to expand. 

     Participants also discussed the appropriate time to implement the 

plan for reducing the Federal Reserves securities holdings that was 

announced in June in the Committees postmeeting statement and its 

Addendum to the Policy Normalization Principles and Plans. Participants 

generally agreed that, in light of their current assessment of economic 

conditions and the outlook, it was appropriate to signal that 

implementation of the program likely would begin relatively soon, absent 

significant adverse developments in the economy or in financial markets. 

Many noted that the program was expected to contribute only modestly to 

the reduction in policy accommodation. Several reiterated that, once the 

program was under way, further adjustments to the stance of monetary 

policy in response to economic developments would be centered on changes 

in the target range for the federal funds rate. Although several 

participants were prepared to announce a starting date for the program 

at the current meeting, most preferred to defer that decision until an 

upcoming meeting while accumulating additional information on the 

economic outlook and developments potentially affecting financial 

markets. 

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

karen.mracek@marketnews.com 

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