Participants generally viewed incoming economic data as confirming that the economy will "continue to expand at a moderate rate" and manifest in further labor market improvement. Several participants, however, suggested that recent employment reports had "increased the uncertainty about the outlook for the labor market." Moreover, some appeared concerned that the recent slowdown in employment growth might not be transitory, and could lead to a stalling in labor market improvement.
The pace of wage gains was seen as subdued, with a number of participants suggesting that it may reflect slower trend productivity growth that is offsetting the upward pressure on wages from a healing labor market. Others noted that lack of wage pressures is "evidence of an absence of upward pressure on inflation from the current level of resource utilization." Still, a number of other participants reported anecdotal evidence of businesses facing challenges in hiring, potentially leading to upward pressures in wages for some occupations and markets.
Participants noted that core PCE inflation remained low, but highlighted that the trimmed mean PCE and trimmed mean CPI measures have "continued to run at higher levels than core PCE inflation and had recently moved up modestly." A few participants felt that the recent CPI data suggested "some firming in inflation." On the whole, participants still expected the downward pressure on inflation from lower oil prices and USD appreciation "would prove temporary," but several cited downside risks to inflation expectations as evidenced by falling breakevens.
Most participants saw diminished risks arising from international economic and financial developments with the U.S. financial system weathering the turbulence in global markets "without systemic stress." and felt the risks to the outlook to be "nearly balanced." A few participants noted that downside global risks were "still significant."
Some participants felt the conditions for beginning policy normalization "had already been met." Moreover, most participants believed, that if not yet, these conditions could be met "by the time of the next meeting." Only some, judged information by the December meeting would be sufficient to warrant lift-off at that time.
Several participants suggested that given the low interest rate environment, it would be "prudent for the Committee to consider options for providing additional monetary policy accommodation" if the outlook weakened materially.
There was general agreement, that once liftoff occurred, removing accommodation thereafter would be done "gradually," with the path of rates far more important than the timing of liftoff in influencing financial conditions.
The meeting minutes reflect a relatively upbeat view of domestic economic activity, with the notion that strong growth in domestically-exposed sectors will outweigh the weakness in externally-exposed sectors. Moreover, inflation was generally viewed as gradually returning to target in light of the current outlook.
International risks have clearly diminished according to the Committee relative to their previous meeting round in September. On the other hand, uncertainty with respect to the U.S. labor market ticked up in light of the two poor payroll reports. Importantly, this meeting took place before the October payroll report, which likely assured that the labor market improvement remains on track.
"We continue to expect a December lift-off is the most likely outcome, barring any ugly surprises from the data, or global financial markets. Having said that, we expect the Fed to increasingly emphasize the gradual, or even glacial, pace of hikes thereafter, likely assuaging fears and containing any unwarranted tightening in financial markets", says TD Economics.
