FOMC Minutes: Participants agreed economy is still far from Fed's goals

Minutes of the FOMC's April 27-28 meeting revealed on Wednesday that participants generally noted that the economy remained far from the Committee's maximum-employment and price-stability goals.

Market reaction

Although the initial reaction of the greenback was largely muted, the US Dollar Index gained traction and was last seen rising 0.4% on the day at 90.13.

Additional takeaways as summarized by Reuters

"Participants judged current stance of policy, guidance remained appropriate."

"Many participants noted consumer spending would keep being supported by fiscal stimulus, vaccine progress, pent up demand, high level of savings."

"Many participants discussed reports of shortages of materials and labor as well as supply chain bottlenecks as likely restraints to the pace of recovery in manufacturing and other sectors."

"A couple of Fed policymakers raised risks of inflation building to 'unwelcome' levels before sufficiently evident to induce policy reaction."

"Many participants noted district contacts seeing pickup in activity in the leisure, travel, and hospitality sectors."

"Various policymakers noted it would likely be some time before substantial progress bar reached."

"Couple of participants reported improved conditions in the agricultural sector, with farmers’ income supported by higher crop prices and federal aid payments."

"Some participants noted that the labor market recovery continued to be uneven across demographic and income groups and across sectors."

"Many participants remarked business contacts having trouble hiring workers, likely reflecting early retirements, health concerns, childcare responsibilities, and expanded unemployment insurance benefits."

"A number of Fed policymakers thought if the economy continued rapid progress, appropriate 'at some point' in upcoming meetings to begin discussing taper."

"Many participants said labor market restraints were depressing labor force participation rate, relative to its pre-pandemic level."

"Some participants noted contacts saying step-up in demand for labor had started to put some upward pressure on wages."

"A few Fed policymakers noted 'moderate' level of vulnerabilities from business, household debt."

"A couple of participants said some businesses in industries severely affected by pandemic were downsizing or some were focused on cutting costs or increasing productivity, particularly through automation."

"Aa couple Fed policymakers thought forbearance programs could be masking vulnerabilities."

"Participants anticipated inflation would move above 2% in near term as low readings from early in pandemic fall out of the calculation."

"A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases."

"Staff briefed policymakers on considerations that could be relevant for judgments regarding whether repo market arrangements should become permanent standing facilities."

"Several participants note risk appetite in capital markets was elevated."

"Participants generally expected measured inflation to ease after transitory effects fade."

"Staff also noted a standing repo facility could create incentives for nonbank firms with access to the facility to take on more liquidity risk than would otherwise be the case."

"A couple noted that a drop in asset prices if risk appetite falls could have adverse implications for the real economy."

"A number of participants noted somewhat elevated valuation pressures in the housing market."

"A number of participants said supply chain bottlenecks and input shortages may not be resolved quickly and these factors could put upward pressure on prices beyond this year."

"Looking further ahead, participants expected inflation consistent with achieving the committee’s objectives over time."

"Policymakers assessed risks to outlook no longer as elevated as in previous months."

"Some participants mentioned upside risks around inflation outlook if temporary factors turn out to be more persistent."

"Some participants said downside risks from pandemic continued, noted potential for an uneven recovery in light of new virus strains and potential hesitancy regarding vaccination."