WASHINGTON (MNI) – The following is an excerpt of the text of the
statement released Wednesday by the Federal Open Market Committee after
its two-day monetary policy meeting June 22 – June 23:
Coninued:
Participants commented that household spending continued to
advance, with notable increases in auto sales and expenditures on other
durable goods. Going forward, consumption spending was expected to
continue to post moderate gains, with the effects of income growth and
improved confidence as the economy recovers more than offsetting the
effects of lower stock prices and housing wealth. However, continued
labor market weakness could weigh on consumer sentiment, and households
were still repairing their balance sheets; both factors could restrain
consumer spending going forward. Although readings from the housing
sector had been strong through mid-spring, participants noted that the
strength likely reflected the effects of the temporary tax credits for
homebuyers. Indeed, data for the most recent month suggested that, with
the expiration of those provisions, home sales and starts had stepped
down noticeably and could remain weak in the near term; with lower
demand and a continuing supply of foreclosed houses coming to market,
participants judged that house prices were likely to remain flat or
decline somewhat further in the near term.
Meeting participants interpreted the data on the labor market as
consistent with their outlook for gradual recovery. Employers were
adding hours to the workweek and hiring temporary workers, suggesting a
pickup in labor demand; however, the most recent data on employment had
been disappointing, and new claims for unemployment insurance remained
elevated. Reportedly, employers were still cautious about adding to
payrolls, given uncertainties about the outlook for the economy and
government policies. Participants expected the pace of hiring to remain
low for some time. Indeed, the unemployment rate was generally expected
to remain noticeably above its long-run sustainable level for several
years, and participants expressed concern about the extended duration of
unemployment spells for a large number of workers. Participants also
noted a risk that continued rapid growth in productivity, though clearly
beneficial in the longer term, could in the near term act to moderate
growth in the demand for labor and thus slow the pace at which the
unemployment rate normalizes.
A broad set of indicators suggested that underlying inflation
remained subdued and was, on net, trending lower. The latest readings on
core inflationwhich excludes the relatively volatile prices of food and
energy had slowed, and other measures of the underlying trajectory of
inflation, such as median and trimmedmean measures, also had moved down
this year. Crude oil prices declined somewhat over the intermeeting
period, a factor that was likely to damp headline inflation at the
consumer level in coming months. Other commodity prices were moderating,
and nominal wages appeared to be rising only slowly. Some participants
indicated that they viewed the substantial slack in labor and resource
markets as likely to reduce inflation. The financial strains in Europe
had led to an increase in the foreign exchange value of the dollar, and
the resulting downward pressure on import prices also was expected to
weigh on consumer prices for a time. However, inflation expectations
were seen by most participants as well anchored, which would tend to
curb any tendency for actual inflation to decline. On balance, meeting
participants revised down modestly their outlook for inflation over the
next couple of years; they generally expected inflation to be quite low
in the near term and to trend slightly higher over time.
Some participants judged the risks to the outlook for inflation as
tilted to the downside, particularly in the near term, in light of the
large amount of resource slack already prevailing in the economy, the
significant downside risks to the outlook for real activity, and the
possibility that inflation expectations could begin to decline in
response to low actual inflation. A few participants cited some risk of
deflation. Other participants, however, thought that inflation was
unlikely to fall appreciably further given the stability of inflation
expectations in recent years and very accommodative monetary policy.
Over the medium term, participants saw both upside and downside risks to
inflation. Several participants noted that a continuation of lowerthan-
expected inflation and high unemployment could eventually lead to a
downward movement in inflation expectations that would reinforce
disinflationary pressures. By contrast, a few participants noted the
possibility that a potentially unsustainable fiscal position and the
size of the Federal Reserve’s balance sheet could boost inflation
expectations and actual inflation over time.
End:
2 of 2
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: MMUFE$,MGU$$$,M$U$$$]
