The Federal Reserve meeting minutes of 4 the July 2023 meeting:
- Uncertainty of U.S. economic outlook remains elevated; future Federal Reserve policy decisions to be driven by the totality of data from the July 25-26 meeting.
- Most participants said inflation risks could require further interest rate hikes.
- A number of participants warned of risks of accidentally tightening policy too much.
- A couple of participants favored holding interest rates steady at the July meeting.
- A number of participants saw economic risks becoming more balanced.
- Most participants saw continued 'significant' upside inflation risks.
- Participants said inflation was 'unacceptably high,' and more evidence is needed to be confident that price pressures are ebbing.
- Participants said a gradual slowdown in economic activity appeared to be happening.
- Participants still saw below-trend growth and a softer labor market as necessary for restoring economic balance.
- Amid uncertainty about monetary policy lags, participants said rate hikes are working as intended.
- The banking system is 'sound and resilient,' but tighter credit conditions are likely to weigh on the economy.
- Staff no longer see the economy entering a mild recession this year and now predict below-trend growth in 2024 and 2025.
- Participants said the labor market is still 'very tight,' although signs are emerging that labor demand is in better balance.
Looking at the Participant's views on current conditions and economic outlook and organizing by conviction showed:
1. Unanimous Views:
- Economic activity has been expanding at a moderate pace.
- The U.S. banking system is sound and resilient.
- The extent of the effects of tighter credit conditions on economic activity, hiring, and inflation remains uncertain.
- All participants agreed on the continuation of reducing the Federal Reserve's securities holdings.
2. Majority/Many Participants:
- Real GDP growth showed resilience and momentum.
- A gradual slowdown in economic activity is in progress due to monetary policy tightening.
- Monetary policy tightening is working as intended.
- Inflation remains above the Committee's 2% objective.
- Almost all participants judged it appropriate to raise the target range for the federal funds rate at the meeting.
- Most participants saw significant upside risks to inflation.
3. Some Participants:
- Observed that recent increases in home prices suggest the housing sector's response to monetary policy may have peaked.
- Commented on conditions that could lead to higher or lower economic activity in the business sector.
- Noted that significant disinflationary pressures had yet to become apparent in core services excluding housing.
- Emphasized the need for banks to be ready to use Federal Reserve liquidity facilities.
- Commented on the continued downside risks to economic activity and upside risks to the unemployment rate.
4. A Few/Several Participants:
- Commented on the vulnerabilities of the CRE market and the ongoing weakness of manufacturing output.
- Observed that growth in payrolls had slowed but continued to exceed values consistent with an unchanged unemployment rate.
- Commented that significant disinflationary pressures were not yet apparent in core services excluding housing.
- Noted the susceptibility of some nonbank financial institutions to runs or instability.
- A couple of participants favored leaving the target range for the federal funds rate unchanged or could have supported such a proposal.
5. General Observations:
- Participants discussed the uncertainty about the effects of monetary policy on the economy.
- They stressed the need for more data to be confident about the path of inflation.
- Participants emphasized the importance of clear communication about the Committee's approach.
- They discussed risk-management considerations for future policy decisions.
