Economist's Insights

FOMC Minutes Reflect Growing Confidence

Apr 12, 2018

The Federal Reserve released the Minutes from its two day meeting on March 20-21. The underlying tone of the Minutes reflected a Fed that had become increasingly confident, consistent with the previously released Official Statement and Summary of Economic Projections. 

Stronger Outlook:  From the Minutes, “All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months” and fiscal stimulus was “expected to provide a significant boost to output over the next few years.” 

More Confident Inflation Will Rebound:  On inflation, “many participants stated that recent readings from indicators on inflation and inflation expectations increased their confidence that inflation would rise to the Committee’s 2 percent objective in coming months and then stabilize around that level.” Only a few noted concerns about achieving the 2 percent target. For the first time since 2011, when detailed balance of risks assessment began being published, no Fed official submitted an official downside risk assessment for inflation (see chart below).

Dismissive of Current Risks:  On the risks front, there were few. “Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect” on the economy; but, “a strong majority” believed escalation of trade tensions pose “downside risks for the U.S. economy.”  Participants also showed a relatively dismissive view of the recent market volatility. “Many participants reported that their contacts had taken the previous month’s turbulence in stride, although a few participants suggested that financial developments over the intermeeting period highlighted some downside risks associated with still-high valuations for equities or from market volatility more generally.” 

Monetary Policy:  On policy, “all participants saw some further firming of the stance of monetary policy as likely to be warranted.”  Additionally, “a number of participants indicated … that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected” given the stronger outlook.

Bottom Line: The greater confidence implied in the Statement and SEP released after the meeting was echoed by the tone of the Minutes. While the official risk assessment remained “roughly balanced,” the Minutes show that, if anything, the Fed may be leaning toward risks being tilted to the upside.