Latest FOMC Minutes
The latest minutes from the August FOMC meeting indicated that the economy expanded at a moderate pace in the second quarter, but recent financial market developments highlighted some of the stresses that the economy faced going forward.
Both consumer and business spending recorded gains in the second quarter, and net exports contributed importantly to the rise in real gross domestic product. However, residential construction continued to fall sharply, the labor market weakened further, and industrial production declined.
Core consumer price inflation remained relatively stable, while headline inflation was elevated as a result of large increases in food and energy prices. Labor demand continued to contract in July.
Private nonfarm payroll employment fell in July at a pace only a bit less than the average monthly rate during the first six months of the year. By industry, the pattern of job losses was roughly similar to those earlier in the year, although July's report showed a smaller decline in construction than earlier.
Although downside risks to growth remained, they appeared to have diminished somewhat, and the upside risks to inflation and inflation expectations increased. The Committee indicated that it would continue to monitor economic and financial developments and would act as needed to promote sustainable economic growth and price stability.
Heightened investor apprehension about the viability of Fannie Mae and Freddie Mac had eased following legislative action, but pressures on these firms continued. Reflecting these strains, interest rates on residential mortgages had moved upward, a development that was seen as potentially exacerbating the contraction in the housing sector.
While some financial institutions had strengthened their balance sheets with new capital issues, raising new capital had become increasingly difficult.
Participants expressed significant concerns about the upside risks to inflation, especially the risk that persistently high headline inflation could result in an unmooring of long-run inflation expectations.
Although members generally anticipated that the next policy move would likely be a tightening, the timing and extent of any change in policy stance would depend on evolving economic and financial developments and the implications for the outlook for economic growth and inflation.