The minutes from the June meeting of the Federal Open Market Committee show that nearly all the committee members and the Federal Reserve are still hesitant to increase the federal funds rate.
According to the latest round of FOMC minutes, despite signs of economic progress, only one of the 10 FOMC members was ready to increase the federal funds rate during the June meeting.
“The committee concluded that, although it had seen some progress, the conditions warranting an increase in the target range for the federal funds rate had not yet been met, and that additional information on the outlook, particularly for labor markets and inflation, would be necessary before deciding to implement such an increase,” the FOMC minutes stated.
But the one member who was willing to increase rates last month “indicated a readiness to take that step at this meeting but also expressed a willingness to wait another meeting or two for additional data before raising the target range.”
The members of the FOMC cited improvement in the housing market as a positive sign, but not positive enough.
“Activity in the housing sector improved somewhat in recent months but continued to be slow,” the FOMC minutes state.
“A number of participants noted that housing starts and permits rose considerably in recent months, and indicators of sales activity turned more positive,” the minutes continue.
“Nonetheless, home construction was still below the trend that would appear consistent with population growth, sales remained at low levels, and credit availability was still relatively tight,” the FOMC members said.
During their discussion of economic conditions and monetary policy, the FOMC members said that they need more information before determining when to raise the federal funds rate.
“Most participants judged that the conditions for policy firming had not yet been achieved; a number of them cautioned against a premature decision,” the minutes state.
“Many participants emphasized that, in order to determine that the criteria for beginning policy normalization had been met, they would need additional information indicating that economic growth was strengthening, that labor market conditions were continuing to improve, and that inflation was moving back toward the committee’s objective,” they continue.
Some FOMC members said that they were concerned with the “potential erosion of the committee’s credibility” if inflation were to persist below 2% and the limited ability of monetary policy to offset downside shocks to inflation and economic activity when the federal funds rate was at its effective lower bound.”
The FOMC concluded by saying that the current federal funds rate could be around longer than some economists predicted just over two months ago.
“The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,” the FOMC said.
“This policy, by keeping the committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions,” the FOMC continued.
“When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%,” the FOMC concluded. “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run."
