FOMC minutes: Members agreed rates should stay restrictive for some time

• Federal Reserve released the minutes from its September 19-20 meeting.
• The minutes showed that officials saw risks to achieving goals had become more two-sided.
• US Dollar drops marginally after the minutes. 

The Federal Open Market Committee (FOMC) released the minutes of its September meeting, which had a limited reaction across financial markets. According to the document, members generally judged the risks to achieving goals had become more two-sided. Most members continued to see upside risks to inflation.

At the September meeting, the Federal Reserve (Fed) decided to maintain the federal funds rate within the range of 5.25% to 5.5%, as expected. The staff projections showed the possibility of another rate hike before the end of the year. The next FOMC decision is on November 1.

Key takeaways from the minutes:

Participants also noted that they expected that real GDP growth would slow in the near term. Participants judged that the current stance of monetary policy was restrictive and that it broadly appeared to be restraining the economy as intended.

Participants stressed that current inflation remained unacceptably high while acknowledging that it had moderated somewhat over the past year. 

Participants observed that the labor market was tight but that supply and demand conditions were continuing to come into better balance.

Participants generally noted there was still a high degree of uncertainty surrounding the economic outlook. One new source of uncertainty was that associated with the autoworkers' strike, and many participants observed that an intensification of the strike posed both an upside risk to inflation and a downside risk to activity.

A majority of participants pointed to upside risks to inflation from rising energy prices that could undo some of the recent disinflation or to the risk that inflation would prove more persistent than expected.

Almost all participants judged it appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent at this meeting. 

A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted.

All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.

All participants agreed that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective.  

Several participants commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions and communications should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels.

Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided. But with inflation still well above the Committee's longer-run goal and the labor market remaining tight, most participants continued to see upside risks to inflation. These risks included the imbalance of aggregate demand and supply persisting longer than expected, as well as risks emanating from global oil markets, the potential for upside shocks to food prices, the effects of a strong housing market on shelter inflation, and the potential for more limited declines in goods prices.
 

Market reaction

The US Dollar Index is rising after falling for five consecutive days, hovering slightly below 106.00. It remains around that area after the minutes, that have little impact on markets.