FOMC minutes: Uncertainties led to pause in rate hikes

“A vast majority of participants continued to judge the future path of the economy as highly uncertain,” stated the minutes from the Sept. 19-20 Federal Open Market Committee (FOMC) meeting. That uncertainty included difficulties estimating the state of financial markets, potential oil price shocks and the impact of labor union strikes on the economy, among other factors. Data volatility and revisions to prior statistical releases posed one set of problems in assessing the economy, the minutes said, as did determining underlying parameters like the neutral rate of interest, the impact of rising “real” rates being bid up by markets, and the degree to which tighter credit would ultimately curb business borrowing and spending. Those factors were seen as “supporting the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate,” the minutes noted. While Fed officials remain aligned on there being “work to do” in order to bring down inflation, the minutes showed increased concern about the risks of going too far with rate increases and slowing activity so much it causes companies to lay off large numbers of workers.

Fed officials must now decide if inflation will continue to fall without further monetary policy action or if additional rate hikes will be needed.