The Federal Reserve Board released the minutes of its March 18-19 Federal Open Market Committee (FOMC) meeting. While we already had the statement from this meeting, the minutes allow us to know the inner deliberations of the Committee. The participants debated, for instance, the degree to which there was “slack” in the labor market, with some feeling that the reduced unemployment rate masked continuing weaknesses (e.g., low participation rate, high rates of underemployment and part-time employment) while others felt that some of these weaknesses mirrored larger demographic trends.
FOMC members also spent some time focusing on the impact of global events on the U.S. economy. The recent deceleration in real GDP growth in China “had already put some downward pressure on world commodity prices, and a couple of participants observed that a larger-than-expected slowdown in economic growth in China could have adverse implications for global economic growth.” The participants also discussed the events of the Ukraine and the negative impact of possible geopolitical events.
One of the more controversial – in some circles – aspect of the March FOMC meeting was the dropping of the 6.5 percent target in its forward guidance. That target had been part of their guidance since the December 2012 FOMC meeting. There were discussions about replacing the 6.5 percent target with another number. (Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, dissented from the final statement and later suggested that he felt the target should have been 5.5 percent.) In the end, the majority of participants voted to approve the switch from a “quantitative” to a “qualitative” target, which would be data dependent but still provide the FOMC with flexibility to act when it needed to.
The FOMC also voted to continue tapering its long-term and mortgage-backed security purchases from $65 billion each month to $55 billion each month. The minutes go on to say the following: “Members again judged that, if the economy continued to develop as anticipated, the Committee would likely reduce the pace of asset purchases in further measured steps at future meetings.”
In general, FOMC members wanted the public to know that it would maintain a highly accommodative stance on monetary policy for the foreseeable future. While tapering of long-term assets will continue at future meetings, short-term interest rates will stay near zero throughout 2014, and it is likely that they will not start to increase the federal funds rate until sometime in 2015.
Chad Moutray is the chief economist, National Association of Manufacturers.
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