Extracts From the Minutes of the Federal Open Market Committee:
In their discussion of the foreign economic outlook, participants generally viewed the risks from the fiscal and financial problems in Greece as having diminished somewhat, although it was observed that Greece still faced many challenges and that Greek economic progress was likely to be limited over the near term. While the recent Chinese stock market decline seemed to have had limited implications to date for the growth outlook in China, several participants noted that a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook. Some participants also discussed the risk that a possible divergence in interest rates in the United States and abroad might lead to further appreciation of the dollar, extending the downward pressure on commodity prices and the weakness in net exports.
During their discussion of economic conditions and monetary policy, participants mentioned a number of considerations associated with the timing and pace of policy normalization. Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point. Participants observed that the labor market had improved notably since early this year, but many saw scope for some further improvement. Many participants indicated that their outlook for sustained economic growth and further improvement in labor markets was key in supporting their expectation that inflation would move up to the Committee's 2 percent objective, and that they would be looking for evidence that the economic outlook was evolving as they anticipated. However, some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term and that the inflation outlook thus might not soon meet one of the conditions established by the Committee for initiating a firming of policy. Several of these participants cited evidence that the response of inflation to the elimination of resource slack might be attenuated and expressed concern about risks of further downward pressure on inflation from international developments. Another concern related to the risk of premature policy tightening was the limited ability of monetary policy to offset downside shocks to inflation and economic activity when the federal funds rate was near its effective lower bound.
In their discussion of the appropriate path for the federal funds rate and associated communications at and after the time of the first increase in the target range, participants expressed support for emphasizing that the course of policy would remain conditional on the Committee's assessment of economic developments and the outlook relative to its objectives. It was also noted that the Committee's communications around the time of the first rate increase should emphasize that the expected path for policy, not the initial increase, would be the most important determinant of financial conditions and should acknowledge that policy would continue to be accommodative to support progress toward the Committee's dual objectives.
The Committee concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met. Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range. One member, however, indicated a readiness to take that step at this meeting but was willing to wait for additional data to confirm a judgment to raise the target range.