The Fed has its eyes on Trump
Here are the minutes:
The information reviewed for the December 13-14 meeting indicated that real gross domestic product (GDP) was expanding at a moderate pace over the second half of the year and that labor market conditions had continued to strengthen in recent months. Consumer price inflation increased further above its pace early in the year but was still running below the Committee's longer-run objective of 2 percent, restrained in part by earlier declines in energy prices and in prices of non-energy imports.
Over the intermeeting period, incoming U.S. economic data and Federal Reserve communications reinforced market participants' expectations for an increase in the target range for the federal funds rate at the December meeting. Asset price movements as well as changes in the expected path for U.S. monetary policy beyond December appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections. Nominal Treasury yields rose across the maturity spectrum, and measures of inflation compensation based on Treasury Inflation-Protected Securities continued to move up. Meanwhile, broad equity price indexes increased, and credit spreads on corporate bonds narrowed. Most private borrowing rates increased somewhat, but financing conditions for nonfinancial firms and households remained broadly accommodative.
In the U.S. economic projection prepared by the staff for the December FOMC meeting, the near-term forecast was little changed from the projection prepared for the November meeting. Real GDP growth in the second half of 2016 was still expected to be faster than in the first half. The staff's forecast for real GDP growth over the next several years was slightly higher, on balance, largely reflecting the effects of the staff's provisional assumption that fiscal policy would be more expansionary in the coming years. These effects were substantially counterbalanced by the restraint from the higher assumed paths for longer-term interest rates and the foreign exchange value of the dollar. The staff projected that real GDP would expand at a modestly faster pace than potential output in 2017 through 2019. The unemployment rate was forecast to edge down gradually, on net, and to continue to run below the staff's estimate of its longer-run natural rate through the end of 2019; the path for the unemployment rate was a little lower than in the previous projection.
In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real output growth, the unemployment rate, and inflation for each year from 2016 through 2019 and over the longer run, based on their individual assessments of the appropriate path for the federal funds rate.6 The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections and policy assessments are described in the Summary of Economic Projections, which is an addendum to these minutes.
In their discussion of monetary policy for the period ahead, members judged that the information received since the Committee met in November indicated that the labor market had continued to strengthen and that economic activity had been expanding at a moderate pace since midyear. Job gains had been solid in recent months, and the unemployment rate had declined. Household spending had been rising moderately, but business fixed investment had remained soft. Inflation had increased since earlier this year but was still below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation had moved up considerably but still were low; most survey-based measures of longer-term inflation expectations were little changed on balance.
By notation vote completed on November 22, 2016, the Committee unanimously approved the minutes of the Committee meeting held on November 1-2, 2016.