FOMC minutes: Further tightening would be appropriate if progress toward inflation objective was insufficient

The Federal Open Market Committee (FOMC) released the minutes of its November meeting, when the Fed held interest rates unchanged in the range 5.25% to 5.5%, as expected. The document showed that participants noted that further policy tightening would be appropriate if progress to the inflation target was insufficient. 

Key takeaways from the minutes: 

Participants assessed that while labor market conditions remained tight, they had eased since earlier in the year, partly as a result of recent increases in labor supply.

Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation.

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. 

Participants observed that the labor market remained tight.

Participants noted that in recent months, financial conditions had tightened significantly because of a substantial run-up in longer-term Treasury yields, among other factors. 

As upside risks to inflation, participants cited the possibility that progress on disinflation stalls or inflation reaccelerates because of continued momentum in economic activity.

While inflation had moderated since the middle of last year, it remained well above the Committee's longer-run goal of 2 percent, and participants remained resolute in their commitment to bring inflation down to the Committee's 2 percent objective.

All participants judged it appropriate to maintain the target range for the federal funds rate at 5¼ to 5½ percent at this meeting. Participants judged that maintaining this restrictive stance of policy at this meeting would support further progress toward the Committee's goals while allowing more time to gather additional information to evaluate this progress. 

All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks. 

Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee's inflation objective was insufficient.

Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply. 

All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee's objective.

Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided. But with inflation still well above the Committee's longer-run goal and the labor market remaining tight, most participants continued to see upside risks to inflation. 

Many participants commented that even though economic activity had been resilient and the labor market had continued to be strong, downside risks to economic activity remained. 

Market reaction

The US Dollar Index rose further after the minutes, reaching a fresh daily high at 103.70; extending the recovery from the monthly lows.