September 20–21 · Published October 12, 2016
JYJanet L. YellenSeptember 20–21, 2016 FOMC Minutes
Our reading
The minutes are consistent with the statement because both documents reflect the FOMC's decision to hold the federal funds rate at 1/4 to 1/2 percent, acknowledge that the case for an increase has strengthened, and emphasize the need to wait for further evidence of progress toward maximum employment and 2 percent inflation before raising rates.
Our reading compares the minutes of the September 20–21 FOMC meeting with the FOMC statement issued at the end of that meeting, three weeks before the minutes were published.
Vote
- Lael Brainard
- James B. Bullard
- William C. Dudley
- Stanley Fischer
- Esther L. George ↑ dissented
- Mses. George and Mester and Mr. Rosengren dissented because they preferred to increase the target range for the federal funds rate by 25 basis points at this meeting. Ms. George judged that with the unemployment rate and inflation at or near their longer-run levels, removing some accommodation was warranted and would be consistent with the prescriptions of several frameworks for assessing the appropriate stance of monetary policy. She was concerned that the Committee's recent policy choices had incorporated too much discretion, and her assessment was that by waiting longer to adjust the policy stance and deviating from the appropriate path to policy normalization, the Committee risked eroding the credibility of its policy communications.
- Loretta J. Mester ↑ dissented
- Mses. George and Mester and Mr. Rosengren dissented because they preferred to increase the target range for the federal funds rate by 25 basis points at this meeting. Ms. Mester noted that the economy had made considerable progress on the Committee's statutory goals, the outlook for continued progress had been corroborated by recent economic developments, and risks around that outlook had diminished. In these circumstances, she believed it appropriate to gradually increase the target range for the federal funds rate, consistent with the Committee's recent communications. A gradual path would give the Committee a better chance of recalibrating the policy path over time as it gains more insights into the underlying structure of the economy. Further delays in taking the next step on the gradual path might require the Committee to subsequently steepen the policy path to foster its goals, which would be inconsistent with the Committee's recent communications, thereby posing risks to the Committee's credibility.
- Jerome H. Powell
- Eric S. Rosengren ↑ dissented
- Mses. George and Mester and Mr. Rosengren dissented because they preferred to increase the target range for the federal funds rate by 25 basis points at this meeting. Mr. Rosengren noted that, since the Committee's most recent policy action in late 2015, significant progress had been made toward the Committee's dual mandate. He believed that with inflation gradually rising and robust employment growth moving the economy very close to full employment, it was appropriate to continue the gradual normalization of monetary policy at this meeting. He believed that a failure to do so could require the Committee to raise policy interest rates faster and more aggressively later on, which could shorten, rather than lengthen, the duration of the economic expansion.
- Daniel K. Tarullo
- Janet L. Yellen
From the minutes
FOMC minutes
Ms. Mester noted that the economy had made considerable progress on the Committee's statutory goals, the outlook for continued progress had been corroborated by recent economic developments, and risks around that outlook had diminished. In these circumstances, she believed it appropriate to gradually increase the target range for the federal funds rate, consistent with the Committee's recent communications. A gradual path would give the Committee a better chance of recalibrating the policy path over time as it gains more insights into the underlying structure of the economy. Further delays in taking the next step on the gradual path might require the Committee to subsequently steepen the policy path to foster its goals, which would be inconsistent with the Committee's recent communications, thereby posing risks to the Committee's credibility.
Mr. Rosengren noted that, since the Committee's most recent policy action in late 2015, significant progress had been made toward the Committee's dual mandate. He believed that with inflation gradually rising and robust employment growth moving the economy very close to full employment, it was appropriate to continue the gradual normalization of monetary policy at this meeting. He believed that a failure to do so could require the Committee to raise policy interest rates faster and more aggressively later on, which could shorten, rather than lengthen, the duration of the economic expansion.
Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors took no action to change the interest rates on reserves or discount rates.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, November 1-2, 2016. The meeting adjourned at 10:45 a.m. on September 21, 2016.
What changed from the previous meeting’s minutes
- Participants now saw near-term risks as roughly balanced, versus diminished but still uncertain previously.
- Three members dissented favoring a 25 basis point hike, up from one dissenter in July.
- Committee added statement that the case for a rate increase had strengthened but awaited further evidence.
- Participants discussed the neutral real interest rate (r*) fall and revised down longer-run r* estimates.
- Labor market debate shifted to whether slack remained versus risk of overshooting full employment.
- Several participants expressed concern that delaying hikes risked eroding policy credibility.
Summary generated automatically from the two documents.