Today the Federal Reserve released minutes from the Fed’s September FOMC meeting that showed two Fed members objecting to the use of language contained in the minutes about considerable time being needed after the Fed’s asset purchase program ends in October to determine when the central bank is ready to begin hiking interest rates.
Since December 2008 during the depths of the global recession, the Federal Reserve has taken an aggressive monetary accommodative approach by holding the federal funds rate close to zero and .25 percent.
The federal funds rate is a widely used benchmark that determines the level of all other interest rates in the U.S. economy and is the rate used when depository institutions actively trade balances with each other held overnight at the Federal Reserve.
The U.S. economy and the labor market in particular have greatly improved since December 2008 as calls have grown louder for the Federal Reserve to take a less accommodative approach by allowing interest rates to rise and return to a period of less monetary stimulus and normalization.
According to the released minutes from the Sept. meeting, “The Committee again anticipated that it would likely be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continued to run below the Committee’s two percent longer run goal, and provided that longer term inflation expectations remain well anchored.”
The Fed’s forward guidance reiterated the Committee’s expectation that even after employment and inflation are near mandate consistent levels, “economic conditions may, for some time, warrant keeping the federal funds rate below levels the Committee views as normal in the longer run.”
Two Fed members dissented from that approach because in their view, “the statement language did not accurately reflect the progress made to date towards the Committee’s goals of maximum employment and inflation of 2 percent, and they believed that the ongoing progress will likely warrant an earlier increase in the federal funds rate than suggested by the forward guidance in the Committee’s post meeting statement.”
The two Fed members voting against this action are Federal Reserve Bank of Dallas President Richard Fischer and Federal Reserve Bank of Philadelphia Charles Plosser.