Minutes released on Wednesday from the Federal Reserve’s July 26-27th monetary policy meeting show that majority of Fed committee members believe that near term downside risks to the economic outlook have diminished since the previous meeting in June.
Fed members agreed that the “prompt recovery” in financial markets after the Brexit vote in late June along with the improved job gains in the June non-farm payroll report had “alleviated two key uncertainties about the outlook that they had faced at the June meeting.”
However, it was underscored in the minutes that “several longer-term global risks related to Brexit remained.”
The July Fed minutes revealed that besides the labor market strengthening, economic activity expanded at a moderate rate, and growth in consumer spending was estimated to have rebounded in the second quarter from the slow pace in the first quarter.
Last Friday, the U.S. Commerce Department reported that retail sales for July was flat at 0.0 percent, following an upwardly revised 0.8 percent in June.
The July Fed minutes noted there are concerns about business fixed investment declining further in the second quarter with weakness appearing in equipment as well as drilling and mining structures.
By majority vote, Fed committee members during the July FOMC meeting agreed to keep the target range for the federal funds rate at 0.25 percent to 0.50 percent which is unchanged since the Fed’s December meeting when Fed members decided to raise the prime interest rate with federal funds for the first time in nearly 10 years and projected 4 rate hikes in 2016 which haven’t materialized.
Some economists are expecting a small gradual rate hike with the federal funds, either at the Fed’s next monetary policy meeting in September, December, or else later in 2017.
Although it remains to be seen what type of adjustments will be made to the Fed’s monetary policy in the weeks and months ahead, the July Fed minutes noted the Committee currently expects that labor market indicators will strengthen and economic activity will expand at a moderate pace with “gradual adjustments” in the stance of monetary policy.
Later next week, Fed Chair Janet Yellen will give a keynote speech at the Jackson Hole Symposium in Jackson Hole, Wyoming before other economists and global central bankers.
During Yellen’s speech, she is expected to provide more insight about the Fed’s monetary policy and could also offer some further clarity about the timing of an interest rate hike with the federal funds in 2016.