The 01 May 2019 meeting statement presented the actions taken. This post covers the economic discussion during this FOMC meeting between the members (minutes were released yesterday). An interesting quote:
For this year as a whole, a number of participants mentioned that they had marked up their projections for real GDP growth, reflecting, in part, the strong first-quarter reading. Participants cited continuing strength in labor market conditions, improvements in consumer confidence and in financial conditions, or diminished downside risks both domestically and abroad, as factors likely to support solid growth over the remainder of the year. Some participants observed that, in part because of the waning impetus from fiscal policy and past removal of monetary policy accommodation, they expected real GDP growth to slow over the medium term, moving back toward their estimates of trend output growth ...
Analyst Opinion of these minutes
I suggest everyone read these minutes - they have not been cookies cutter minutes (having little real change between meeting) since the departure of Chair Janet Yellen.
I find it interesting that the markets only seem to care about the federal funds rate - which these minutes indicate that the federal funds rate will remain unchanged as long as the participant's economic forecasts come true.
Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.
The interesting points are highlighted in bold below. Econintersect publishes below the views of the FOMC members and ignores the reports given to the members. We are looking for a glimpse of insight into the minds of the FOMC members. The highlighted areas were added to emphasize important elements.
Participants' Views on Current Conditions and the Economic Outlook
Participants agreed that labor markets had remained strong over the intermeeting period and that economic activity had risen at a solid rate. Job gains had been solid, on average, in recent months, and the unemployment rate had stayed low. Participants also observed that growth in household spending and business fixed investment had slowed in the first quarter. Overall inflation and inflation for items other than food and energy, both measured on a 12-month basis, had declined and were running below 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and survey-based measures of longer-term inflation expectations were little changed.
Participants continued to view sustained expansion of economic activity, with strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. Participants noted the unexpected strength in first-quarter GDP growth, but some observed that the composition of growth, with large contributions from inventories and net exports and more modest contributions from consumption and investment, suggested that GDP growth in the near term would likely moderate from its strong pace of last year. For this year as a whole, a number of participants mentioned that they had marked up their projections for real GDP growth, reflecting, in part, the strong first-quarter reading. Participants cited continuing strength in labor market conditions, improvements in consumer confidence and in financial conditions, or diminished downside risks both domestically and abroad, as factors likely to support solid growth over the remainder of the year. Some participants observed that, in part because of the waning impetus from fiscal policy and past removal of monetary policy accommodation, they expected real GDP growth to slow over the medium term, moving back toward their estimates of trend output growth.
In their discussion of the household sector, participants discussed recent indicators, including retail sales and light motor vehicle sales for March, which rose from relatively weak readings in some previous months. Taken together, these developments suggested that the first-quarter softness in household spending was likely to prove temporary. With the strong jobs market, rising incomes, and upbeat consumer sentiment, growth in PCE in coming months was expected to be solid. Several participants also noted that while the housing sector had been a drag on GDP growth for some time, recent data pointed to some signs of stabilization. With mortgage rates at their lowest levels in more than a year, a few participants thought that residential construction could begin to make positive contributions to GDP growth in the near term; a few others were less optimistic.
Participants noted that growth of business fixed investment had moderated in the first quarter relative to the average pace recorded last year and discussed whether this more moderate growth was likely to persist. A number of participants expressed optimism that there would be continued growth in capital expenditures this year, albeit probably at a slower pace than in 2018. Several participants observed that financial conditions and business sentiment had continued to improve, consistent with reports from business contacts in a number of Districts; however, a few others reported less buoyant business sentiment Many participants suggested that their own concerns from earlier in the year about downside risks from slowing global economic growth and the deterioration in financial conditions or similar concerns expressed by their business contacts had abated to some extent. However, a few participants noted that ongoing challenges in the agricultural sector, including those associated with trade uncertainty and low prices, had been exacerbated by severe flooding in recent weeks.
Participants observed that inflation pressures remained muted and that the most recent data on overall inflation, and inflation for items other than food and energy, had come in lower than expected. At least part of the recent softness in inflation could be attributed to idiosyncratic factors that seemed likely to have only transitory effects on inflation, including unusually sharp declines in the prices of apparel and of portfolio management services. Some research suggests that idiosyncratic factors that largely affected acylical sectors in the economy had accounted for a substantial portion of the fluctuations in inflation over the past couple of years. Consistent with the view that recent lower inflation readings could be temporary, a number of participants mentioned the trimmed mean measure of PCE price inflation, produced by the Federal Reserve Bank of Dallas, which removes the influence of unusually large changes in the prices of individual items in either direction; these participants observed that the trimmed mean measure had been stable at or close to 2 percent over recent months. Participants continued to view inflation near the Committee's symmetric 2 percent objective as the most likely outcome, but, in light of recent, softer inflation readings, some viewed the downside risks to inflation as having increased. Some participants also expressed concerns that long-term inflation expectations could be below levels consistent with the Committee's 2 percent target or at risk of falling below that level.
Participants agreed that labor market conditions remained strong. Job gains in the March employment report were solid, the unemployment rate remained low, and, while the labor force participation rate moved down a touch, it remained high relative to estimates of its underlying demographically driven, downward trend. Contacts in a number of Districts continued to report shortages of qualified workers, in some cases inducing businesses to find novel ways to attract new workers. A few participants commented that labor market conditions in their Districts were putting upward pressure on compensation levels for lower-wage jobs, although there were few reports of a broad-based pickup in wage growth. Several participants noted that business contacts expressed optimism that despite tight labor markets they would be able to find workers or would find technological solutions for labor shortage problems.
Participants commented on risks associated with their outlook for economic activity over the medium term. Some participants viewed risks to the downside for real GDP growth as having decreased, partly because prospects for a sharp slowdown in global economic growth, particularly in China and Europe, had diminished. These improvements notwithstanding, most participants observed that downside risks to the outlook for growth remain.
In discussing developments in financial markets, a number of participants noted that financial market conditions had improved following the period of stress observed over the fourth quarter of last year and that the volatility in prices and financial conditions had subsided. These factors were thought to have helped buoy consumer and business confidence or to have mitigated short-term downside risks to the real economy. More generally, the improvement in financial conditions was regarded by many participants as providing support for the outlook for economic growth and employment.
Among those participants who commented on financial stability, most highlighted recent developments related to leveraged loans and corporate bonds as well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that heightened leverage and associated debt burdens could render the business sector more sensitive to economic downturns than would otherwise be the case. A couple of participants suggested that increases in bank capital in current circumstances with solid economic growth and strong profits could help support financial and macroeconomic stability over the longer run. A couple of participants observed that asset valuations in some markets appeared high, relative to fundamentals. A few participants commented on the positive role that the Board's semi-annual Financial Stability Report could play in facilitating public discussion of risks that could be present in some segments of the financial system.
In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, and that information received over the intermeeting period showed that economic activity grew at a solid rate. However, both overall inflation and inflation for items other than food and energy had declined and were running below the Committee's 2 percent objective. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. That said, these and other sources of uncertainty remained. In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures.
Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee's balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee's symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee's objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee's symmetric 2 percent objective—a development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.
Source:
https://www.federalreserve.gov/monetarypolicy/fomcminutes20190501.htm
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