FOMC Minutes: Some Voters Say Next Hike Depends on Infl Trajectory>

--Several Officials Want to Feel More Confident on Infl Before Hike

--Some Other Officials Worried About Upside Risk to Infl

--Hurricanes to Distort Data for Next Few Months; No Med-Term Impact

By Jean Yung

     WASHINGTON (MNI) - Many Federal Reserve policymakers in their 

September meeting worried over whether recent low inflation readings 

this year were transitory and some said they wanted to feel more 

confident that inflation was moving higher before raising interest rates 

again. Yet at the same time, others expressed concern over upside risks 

for inflation given the tightness of the labor market, minutes of the 

meeting showed Wednesday. 

     The account highlights the range of opinions on the Federal Open 

Market Committee after their preferred measure of inflation, the core 

personal consumption expenditures price index, decelerated from a 1.9% 

annual pace earlier this year to just 1.4% in August. 

     "Many participants thought that another increase in the target 

range later this year was likely to be warranted if the medium-term 

outlook remained broadly unchanged," the account of the Sept. 19-20 

meeting said. 

     But, "Several others noted that, in light of the uncertainty around 

their outlook for inflation, their decision on whether to take such a 

policy action would depend importantly on whether the economic data in 

coming months increased their confidence that inflation was moving up 

toward the Committees objective," the minutes said. 

     "A few participants," which includes nonvoters on the FOMC, 

"thought that additional increases in the federal funds rate should be 

deferred until incoming information confirmed that the low readings on 

inflation this year were not likely to persist and that inflation was 

clearly on a path toward the Committees symmetric 2 percent objective 

over the medium term." 

     The Fed kept its key policy rate steady to a target range of 1.00% 

to 1.25% at the September meeting while launching its planned balance 

sheet reduction program. The minutes showed that all officials though it 

was appropriate to hold rates steady and "nearly all" supported saying 

in their post-meeting statement that "a gradual approach to increasing 

the federal funds rate will likely be warranted."  

     Still, "many participants" expressed concern that the low inflation 

readings might reflect not only transitory factors, "but also the 

influence of developments that could prove more persistent," and 

concluded that hitting the Fed's 2% target "might take somewhat longer 

than they anticipated earlier." 

     "It was noted that some patience in removing policy accommodation 

while assessing trends in inflation was warranted," the minutes said, 

adding that a few officials thought no more hikes were called for in the 

near term or that the upward trajectory for the fed funds rate "might 

appropriately be quite shallow." 

     Among the voters, some emphasized that they would be "evaluating 

incoming information to assess the likelihood that recent low readings 

on inflation were transitory and that inflation was again on a 

trajectory consistent with achieving the Committee's 2 percent objective 

over the medium term." 

     Officials cited the tight labor market as supporting inflation over 

the medium term. Most officials said they expected wage increases to 

pick up as the labor market strengthened further, and a couple of them 

"cautioned that a broader acceleration in wages may already have 

begun," the minutes said. 

     "Many participants continued to believe that the cyclical pressures 

associated with a tightening labor market or an economy operating above 

its potential were likely to show through to higher inflation over the 

medium term," the minutes said. 

     Judging the economy more broadly, Fed officials noted that the 

expansion was evolving mostly as expected and even the unusually 

destructive hurricane season won't have any material impact over the 

medium term. 

     While higher prices for gasoline and other items were likely to 

boost inflation temporarily, and storm-related disruptions could hold 

down GDP growth in the third quarter, officials saw little change in 

their outlook for growth and the labor market.           

     Stock prices were higher and long-term interest rates and the 

exchange rate of the dollar were declining between the July and 

September FOMC meetings, officials noted, creating accommodative 

financial conditions. That drew the attention of a couple officials, who 

said such easy conditions over time could pose risks to financial 

stability. 

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

jean.yung@marketnews.com 

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