**MNI POLICY: Fed Minutes: Many Project Above-Neutral Rates>

--Top Takeaways From Minutes Of the Sept 25-26 FOMC Meeting

By Jean Yung

     WASHINGTON (MNI) - The following are the key points from the 

minutes of the Sept. 25-26 FOMC meeting released Wednesday:

     --Many FOMC members want to temporarily push rates higher than 

neutral to minimize the risk of inflation running higher than 2% and 

financial stability risks. "A number judged that it would be necessary 

to temporarily raise the federal funds rate above their assessments of 

its longer-run level" in order to reduce the risk of "a sustained 

overshooting" of the inflation objective or the risk of "signficant 

financial imbalances," the minutes said. There are also a few officials 

who project modestly restrictive policy "for a time" and a couple others 

who said they would not favor a restrictive stance unless the economy is 

clearly overheating and inflation rising. 

     --The FOMC judged it appropriate to remove the reference to 

'accommodative' monetary policy from its policy statement before the fed 

funds rate moved closer to the range of estimates of the neutral rate so 

that it would not be "signaling a change in the expected path for 

policy." Had they waited to remove the phrase, it "could convey a false 

sense of precision in light of the considerable uncertainty surrounding 

all estimates of the neutral federal funds rate." 

     --Policymakers generally anticipated that "further gradual 

increases" would be necessary and expected that inflation was on a 

trajectory to achieve the 2% target on a sustained basis. 

     --Officials reiterated that estimates of the neutral rate would be 

"only one among many factors" they will consider in determining policy. 

     --Officials saw risks as roughly balanced. Downside risks include: 

uncertainty over trade policy, a stronger dollar stemming from 

divergence between domestic and foreign economic growth prospects and 

monetary policy settings, and financial stress in a few EMEs. Upside 

risks include: high consumer confidence, accommodative financial 

conditions, and greater-than-expected effects of fiscal stimulus on 

growth. 

     --A few officials said economic growth was stronger than they had 

expected while the rest said the data was as expected. A couple 

officials said recent strong GDP growth may be due in part to an 

increase in the economy's productive capacity. The tax cut likely 

bolstered investment spending. On the other hand, steel and aluminum 

tariffs were reducing new investment in the energy sector while some 

firms said they were trying to diversify the geographic origins of their 

trading partners. 

     --No discussion about making another technical adjustment to the 

IOER rate relative to the upper end of the target range, but the SOMA 

manager reported that the spread between the IOER rate and the effective 

fed funds rate was "relatively tight" at 3 bps and seemed likely to 

narrow to 2 bps in the near future. However there was no sign that a 

scarcity of reserves was driving the upward pressure on the fed funds 

rate. 

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

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