FOMC Minutes: Further Tightening Would Be Appropriate if Progress Toward Inflation Target Were Insufficient

• The Federal Reserve publishes the minutes of its meeting from October 31 to November 1.
• The minutes showed that members agreed that policy decisions would continue to be based on the totality of incoming information.
• The Dollar remains stable after the publication of the Minutes, maintaining modest gains.

The Federal Open Market Committee (FOMC) released the minutes of its November meeting, in which the Fed kept interest rates unchanged in the range of 5.25% to 5.5%, as expected. The paper shows that participants noted that further policy tightening would be appropriate if progress toward the inflation target was insufficient.

Main conclusions from the Minutes:

Participants considered that, although labor market conditions remained tense, they had eased since the beginning of the year, partly as a result of the recent increase in labor supply.

Participants viewed the current stance of monetary policy as restrictive and putting downward pressure on economic activity and inflation.

They also stressed that more evidence would be needed to be confident that inflation was clearly heading towards the Committee’s 2% target.

Participants noted that the labor market remained tense.

Participants noted that financial conditions had tightened significantly in recent months due to, among other factors, a substantial rise in longer-term Treasury yields.

As upside risks to inflation, participants cited the possibility that progress on disinflation stalls or that inflation reaccelerates due to continued momentum in economic activity.

Although inflation had moderated since the middle of last year, it remained well above the Committee’s long-term target of 2%, and participants remained firm in their commitment to reduce inflation to the Committee’s 2% target. Committee.

All participants considered it appropriate to maintain the federal funds rate between 5¼% and 5½% at this meeting. The participants considered that maintaining this restrictive stance of monetary policy at this meeting would allow further progress towards achieving the Committee’s objectives, while at the same time more time would be available to collect additional information to evaluate said progress.

All participants agreed that the Committee was in a position to proceed with caution and that monetary policy decisions at each meeting would continue to be based on all the information received and its implications for the economic outlook, as well as the balance of risks.

Participants noted that further tightening of monetary policy would be appropriate if information received indicated that progress toward the Committee’s inflation target was insufficient.

ParticipantsThey hoped that data arriving in the coming months would help clarify the extent to which the disinflation process continued.aggregate demand was moderating in the face of tightening financial and credit conditions, and labor markets were achieving a greater balance between demand and supply.

All participants felt that it would be appropriate for the monetary policy to maintain a restrictive stance for some time until inflation clearly declines sustainably towards the Committee’s target.

In general, participants considered that, with the restrictive stance of monetary policy, the risks to the achievement of the Committee’s objectives had become more two-way. However, with inflation remaining well above the Committee’s long-term target and the labor market remaining tight, most participants continued to perceive upside risks to inflation.

Many participants commented that, although economic activity had held up and the labor market had remained strong, risks remainedto the low for theactivity economical.

Market reaction

The Dollar Index continued to rise following the release of the minutes, reaching a new daily high at 103.70, extending the recovery from monthly lows.