Fed minutes highlight discussions on inflation growth, rate hikes

The Federal Reserve released the minutes of the September 19-20 meeting, at which policymakers voted to hold overnight interest rates unchanged between 1% and 1.2% for the second session, while announcing plans to normalize the balance sheet by October. 

FOMC members pointed to the data available to the Committee since the July 25-26 meeting, as the labor market kept improving while economic activity expanded moderately, as labor gains slipped while remaining solid in average this year, and the unemployment rate fell. 

Members said household spending rose modestly, but consumption growth foundations remained strong, as fixed-rate investment stabilized, while inflation gauges in the last 12 month were near the bank's long-term 2% target, while still below that target when excluding energy and food prices.

Members asserted the Committee's commitment to boost job opportunities and stabilize prices, while pointing to the slow growth in the first quarter as probably transitory, as members still project gradual tightening of the monetary policy to allow the economy to expand moderately.  

Members asserted the Committee's commitment to boost job opportunities and stabilize prices, noting that recent hurricanes Harvey, Irma led to widespread destruction and hardship for many people, with the impact expected to weigh on economic growth in the short term. 

However, members said that previous experiences with hurricanes point to a transient impact at best in the medium term, so they still project gradual tightening of the monetary policy to allow the economy to expand moderately.  

They also expect bumps in petrol prices alongside some other items after the hurricanes, which would lead to a temporary rise in inflation, but otherwise, inflationary pressures are still expected to steady below 2% in the medium term, while considering short-term risks as roughly balanced, as the Committee continues to monitor inflation gauges and global economic and financial developments closely. 

As of 07:18 GMT, the dollar index, tracking the greenback against a basket of currencies, fell 0.31% to 93.00 from the opening of 93.20, with an intraday high at 93.37, and the lowest since September 29 at 92.96.

Similarly, members said that taking into consideration the labor conditions and current inflation rates, the Committee decided to hold interest raters into the range of 1% to 1.25 percent, while keeping the monetary policy accommodative, offering further support to the labor sector and nudging inflation firmly towards 2%. 

The Committee said it's assessing the current and projected economic conditions, with an eye towards achieving its targets of full employment and 2% inflation, while taking into consideration a wide group of data and economic information, including the labor market conditions and inflation indices. 

Members expect the economic conditions to develop in a way that allows for gradual tightening of the policy, with a path that ends just below the projected interest rates levels in the long term, while reaffirming that the actual path of short-term overnight interest rates depends on aforementioned economic projections and data. 

Otherwise, the Committee is carrying on its current policy of reinvesting its holdings of debt, mortgage-backed securities, and treasury bills and selling them in public auctions to trim them down from their current high levels in the long term, and in order to keep the financial conditions accommodative.

The FOMC expects to start normalizing the balance sheet from October to cut down on high levels of debt and mortgage-backed securities held by the Federal Reserve, as all the members agreed on the principles of normalizing the policy through the steps detailed in the additional document submitted alongside the usual bank statement in this meeting. 

The Committee wants to cut its monetary holdings gradually by reinvesting them through the open market system, while expecting the treasury bill sales to reach $6 billion at the start of the process, while rising to $30 billion a month in 12 months.

As for mortgage-backed security sales, they will start at $4 billion and advance to $20 billion a month after a year of the process. 

The Committee said that gradual cuts in the bank's debt holdings will trim down the reserve balance to way below recent years, while still remaining above the levels seen before the global financial crisis. 

Members are aiming to change the targeted range for federal money as the main way to change the policy, while standing to downgrade their interest rate target in case economic conditions deteriorated. 

Finally, the Committee asserted it stand ready to use all the tools available to it to increase the balance sheet again if conditions called for heavy easing policies that couldn't be satisfied only with cutting interest rates on federal money. 

The following details the Federal Reserve's three year forecasts for growth, unemployment, inflation, and interest rates, released after the September meeting: 

Growth rates are expected to range from 2.2% and 2.5% in 2017, compared to 2.1% to 2.2% in previous forecasts in the July meeting, while in 2018, the bank forecasts a growth of 2.0% to 2.3%, compared to 1.8% to 2.2% previously, while expecting growth of 1.8% to 2.0 in 2019, same as before, and finally, long-term growth is forecast to range from 1.8% to 2.0%, same as before as well.

Unemployment rates for 2017 are expected to range between 4.2% and 4.3%, same as previous forecasts in July, while rates for 2018 are forecast to range from 4.0% to 4.2%, compared to 4.0% to 4.3% before. For 2019, forecasts point to 3.9% to 4.4%, compared to 4.1% to 4.7% before, while ranging from 4.5% to 4.8% in the long term, same as before.

Inflation in 2017 is expected to range from 1.5% to 1.6%, compared to 1.6% to 1.7% in previous forecasts, while ranging from 1.8% to 2.0% in 2018, same as before before. In 2019, inflation is projected to steady at 2.0%, compared to 2.0% to 2.1% in previous forecasts, while settling at 2.0% in the long term, the same as before.

Core inflation in 2017 is forecast to range from 1.5% to 1.6%, down from 1.6% to 1.7% in previous projections in July, while ranging from 1.8% to 2.0% in 2018, same as before, and moving between 2.0% and 2.1% in 2019, also same as before, and fore 2020, it's expected to range between 2.0% and 2.1%. 

Finally, the FOMC expects overnight interest rates to range between 1.1% and 1.4% this year, while ranging from 1.9% to 2.4% in 2018, compared to 1.9% to 2.6% previously, as rates are expected to range between 2.4% and 3.1% in 2019, compared to 2.6% to 3.1% before, while in the long term, rates are projected to range between 2.5% and 3.0%, compared to a range of 2.8% to 3.0% in previous forecasts.