The released minutes yesterday from the Federal Reserve’s June 13-14th monetary policy meeting shows that overwhelmingly Fed participants at the U.S. central bank believed that the U.S. economy was strengthening enough to warrant an increase in interest rates with the federal funds for the 2nd time in 2017.
The economic data revealed that real gross U.S. domestic product (GDP) was expanding at a faster pace in the second quarter than in the first quarter and the average pace of job increases over the first five months of the year was solid.
Average hourly earnings for all employees increased 2.5 percent over the past 12 months ending in May, similar to the same period a year ago, and the U.S. unemployment rated edged down to 4.3 percent in May, the lowest level since March 2001.
The risks to the forecasts for real U.S. GDP and the unemployment rate were seen as balanced, growth in consumer spending seemed to have bounced back from a weak first quarter, and “the downside risks associated with monetary policy not being well positioned to respond to adverse shocks had diminished since its previous forecast.”
Core PCE price inflation, the Fed’s preferred inflation gauge, softened from 1.8 percent in March to 1.5 percent in April “partly because of factors that appeared to be transitory” while CPI inflation in May came in lower than expected.
However, Fed participants believed as the effects of transitory factors waned and labor market conditions strengthened further, inflation would stabilize around the Fed’s 2 percent objective over the medium term and near-term risks to the economic outlook were viewed as “roughly balanced.”
Concerning monetary policy, Fed participants saw the outlook for economic activity and medium-term outlook for inflation as “little changed” and viewed a “continued gradual removal of monetary policy accommodation as being appropriate.”
All but one Fed participants voted to raise the target range for the federal funds rate by 25 basis points to 1.0 percent to 1.25 percent while the Fed begins implementing a balance sheet normalization program in 2017.
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