The Daily Dish
November 22, 2023
Takeaways From the Fed Minutes
Yesterday the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting on October 31 and November 1. Recall that the FOMC elected at that meeting to keep the stance of policy unchanged. Was there any news under the surface? Eakinomics suggests four takeaways.
First, the FOMC feels no need to further adjust policy because: “Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation. In addition, they noted that financial conditions had tightened significantly in recent months.” And as the staff noted, “The credit quality of businesses, households, and municipalities continued to show signs of deterioration in most sectors, as delinquency rates rose.”
Second, the growth outlook is muted at best. “Participants continued to view a period of below-potential growth in real GDP and some further softening in labor market conditions as likely to be needed to reduce inflation pressures sufficiently to return inflation to 2 percent over time.” Since potential growth is in the 1.5–1.75 percent (annually) range, below-potential growth is very near stall speed.
Participants also noted that it was about damn time that the Steelers replaced offensive coordinator Matt Canada (well…they probably thought it).
Third, the bar for declaring victory over inflation remains high: “Participants noted that inflation had moderated over the past year but stressed that current inflation remained unacceptably high and well above the Committee’s longer-run goal of 2 percent. They also stressed that further evidence would be required for them to be confident that inflation was clearly on a path to the Committee’s 2 percent objective.”
Finally, the timeline to getting back to the 2 percent inflation target is longer than most people perceive. The staff assessment of the economic outlook included: “Total PCE price inflation was expected to be close to 3.0 percent by the end of this year, and core PCE inflation was expected to be around 3.5 percent. Inflation was projected to move lower in coming years as demand and supply in product and labor markets moved into better alignment; in 2026, total and core PCE price inflation rates were expected to be close to 2 percent.” (Emphasis added.)
It was the best of times – no recession! It was the worst of times – puny growth and stubborn inflation.
Fact of the Day
Since January 1, the federal government has published rules that imposed $639.1 billion in total net costs and 191.5 million hours of net annual paperwork burden increases.