December 12–13, 2017 FOMC Minutes

Our reading

The minutes read consistent with the statement because they reflect the same key economic assessments and policy decisions, while providing additional detail and discussion. Specifically, the minutes confirm the statement's observations about solid labor market conditions, moderate economic growth, and inflation running below 2 percent. They also align with the statement's decision to raise the federal funds rate target range to 1-1/4 to 1-1/2 percent, as nearly all members agreed to this action, and they echo the statement's forward guidance about gradual increases in the federal funds rate and the expectation that inflation will stabilize around 2 percent over the medium term. The minutes also mirror the statement's acknowledgment of roughly balanced near-term risks and the commitment to monitor inflation closely, while adding context on dissenting views and detailed discussions of inflation and financial conditions.

FOMC minutes

In Mr. Evans's view, with inflation continuing to run substantially below 2 percent and measures of inflation expectations lower than he believed to be consistent with a symmetric 2 percent inflation objective, it was important to pause in the process of policy normalization. Leaving the target range at 1 to 1-1/4 percent for a time would better support an increase in inflation expectations, increase the likelihood that inflation will rise to 2 percent and perhaps modestly beyond, and thus provide more support for the symmetry of the Committee's inflation objective. Such a pause also would better allow the Committee time to assess the degree to which earlier soft readings on inflation were transitory or more persistent.

In Mr. Kashkari's view, while employment growth remained strong, wage growth had not picked up and inflation remained notably below the Committee's 2 percent target. In addition, the yield curve had flattened as long-term rates had not moved higher even though the Committee raised the federal funds rate target range. He was concerned that the flattening yield curve was partly due to falling longer-term inflation expectations or a lower neutral real rate of interest. He preferred to wait for inflation to move closer to 2 percent on a sustained basis or for inflation expectations to move up before further raising the target range for the federal funds rate.

To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors voted unanimously to raise the interest rates on required and excess reserve balances 1/4 percentage point, to 1-1/2 percent, effective December 14, 2017. The Board of Governors also voted unanimously to approve a 1/4 percentage point increase in the primary credit rate (discount rate) to 2 percent, effective December 14, 2017.5

It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, January 30-31, 2018. The meeting adjourned at 10:15 a.m. on December 13, 2017.