FOMC Minutes: Labor Market Has Improved, Inflation Still Below Target

In the minutes of their December 15 –16th Federal Open Market Committee (FOMC) meeting, Fed officials justified their decision to raise the federal funds rate, citing a range of labor market, and domestic and foreign developments.

In terms of the size and timing of future rate hikes, members expect economic conditions to warrant only gradual increases in the federal funds rate. Based on current conditions, they anticipate that the rate will remain below long-run median estimates for some time.

Members agreed that the labor market had shown further improvement and confirmed that underutilization of labor markets had “diminished appreciably” since early this year. Members also anticipated that economic activity was likely to continue to expand at a pace sufficient to lead to a further increase in utilization of labor resources.

Inflation continued to run below the Committee’s long term objective as both energy and non-energy import prices declined. Members believed that the further decline in oil prices during the intermeeting period was likely to exert “additional transitory downward pressure” on inflation in the near term. The medium term outlook was more optimistic, as most members expected inflation to increase gradually as energy prices stabilize and the labor market strengthens. Some members were more cautious, believing that the risks to their inflation forecasts were “considerable,” as the risks of downward shocks in oil prices, or a sustained rise in the value of the dollar could affect inflation expectations.

Read the FOMC minutes.