The growth of the US economy could be affected in the medium term by a further deterioration of the economies of Europe, China and Japan. According to the minutes of the meeting of the Monetary Committee of the Fed (FOMC) released on Wednesday, however, many participants felt that this impact is now “very limited.”
Growth appears to 3.5% in Q3 and the Fed plans to expand between 2% and 2.2% for the entire year.
Members of the Fed have argued that the decline in energy prices could “offset” the negative impact of the rising dollar and encourage consumption in the United States.
Falling energy prices will also “contain inflation in the short term,” but the Committee still betting on an increase of the price increase to the 2% target “in the years to come.” Some officials are nevertheless concerned that inflation could “persist” as long as the goal of the Fed.
Many participants urged the central bank to be vigilant with market expectations in terms of inflation as reflected in bond yields.
The year inflation is 1.4%, according to the PCE index observed by the Fed, and 1.7%, according to the ICC. The figure of rising prices for October to be released Thursday.
At the last meeting, the FOMC had terminated its liquidity in the financial system and reiterated that rates would remain near zero for a “considerable period of time.” Committee members voted against, concerned about the persistence of low inflation.
Participants failed to include in the FOMC statement – but it finally gave up – their concern of the economic slowdown abroad. “The participants finally felt that such a message would suggest greater pessimism than it is on the economic outlook,” the report specifies.
Especially that “the decline in the price of energy and other raw materials (…) should provide compensation to the stronger dollar and weaker growth abroad,” say the members of the Fed.
For many of them this fall in fuel prices “should provide a boost to consumer spending in the short term (…) and in particular benefit to households on low incomes.”
Committee members commented on the turmoil in financial markets that occurred in mid-October and noted that “financial conditions remain very accommodative and other access turbulences are to be expected while the normalization of interest rate approaches.”
The Fed officials have amply discussed the word “considerable period” before the first rate increase they ultimately chose to keep. They also reiterated that “the first rate hike and the stance of monetary policy thereafter would depend on economic data and their implications on the economic outlook.”