FOMC Minutes: Recovery faster than expected from its depressed second Q2 level

Minutes of the FOMC's September 15-16 meeting showed on Wednesday that participants believe the economic activity was recovering faster than expected from its depressed second-quarter level according to incoming data.

Market reaction

The US Dollar Index showed no immediate reaction to the FOMC's publication and was last seen losing 0.25% on the day at 93.62.

Key takeaways as summarized by Reuters

"Participants noted that business investment, which had plummeted in the second quarter, appeared to have begun to turn around."

"Al­though business contacts indicated that overall business activity had been stronger than they expected, it remained well below pre-pandemic levels."

"Several participants agreed it was appropriate to incorporate key elements of the consensus statement into the post-meeting statement, they preferred to retain forward guidance similar to that provided in recent FOMC statements."

"Many participants said their outlook assumed additional fiscal support."

"Many participants said that if future fiscal support was significantly smaller or came significantly later than they expected, the pace of recovery could be slower than anticipated."

"These participants judged that given very low long-term rates, there did not appear to be a need for enhanced forward guidance at this juncture or much scope for forward guidance to put additional downward pressure on yields."

"Participants generally expected spending on services to remain subdued for some time, restraining the pace of recovery."

"These participants were concerned that enhanced forward guidance could limit the committee’s flexibility for years."

"A few participants thought savings from pandemic relief could generate greater-than-anticipated momentum to spending, a couple thought it was unlikely."

"A number of participants judged that the absence of further fiscal support would exacerbate economic hardships in minority, lower-income communities."

"These participants also were concerned by a possible build-up of financial imbalances."

"Some participants noted in future meetings it would be appropriate to further assess and communicate how asset purchases could best support the achievement of the committee’s goals."

"All participants agreed that the completion of the framework review and the publication of the revised consensus statement provided a strong foundation for monetary policy decisions and communications going forward."

"Several participants noted the stress that small- and medium-sized banks could face from defaults."

"A couple of participants indicated that highly accommodative financial market conditions could lead to excessive risk-taking and to a buildup of financial imbalances."

"Most participants supported providing more explicit outcome-based forward guidance for the federal funds rate."

"Most participants judged that included establishing criteria for lifting the federal funds rate above the effective lower bound in terms of the paths for employment or inflation or both."

"Most participants raised the concern that fiscal support so far might not provide sufficient relief."

"A couple of participants saw an upside risk of bigger-than-expected fiscal stimulus, though later than had been expected."

"Among the participants who favored providing more explicit forward guidance at this meeting, all but a couple supported the formulation that was included in the statement."

"A couple of participants preferred even stronger, and less qualified, outcome-based forward guidance that they judged would more clearly convey the committee’s commitment to its objectives."

"FOMC voters generally agreed its guidance expressed its assessment of the most likely rate path but not an unconditional commitment."