Eastern time on October 11, the Federal Reserve released the minutes of the September interest rate meeting. According to the minutes, most participants thought that one more increase in the federal funds rate would likely be appropriate at future meetings, while some participants thought that further increases might not be necessary.
Although inflation has moderated since the middle of last year, it remains well above the 2 percent longer-run objective, and participants remained firmly committed to bringing inflation down to that objective. In these economic conditions, and given the significant cumulative tightening of the stance of monetary policy and the lag in the effects of policy on economic activity and inflation, nearly all participants judged it appropriate to maintain the target range for the federal funds rate at 5.25% to 5.5% at the September meeting. Participants believed that maintaining this policy constraint would facilitate further progress toward the 2 percent inflation objective, while allowing the Open Market Committee (FOMC) time to gather additional data to assess that progress.
In their discussion of the outlook for policy, participants continued to view it as critical that the stance of monetary policy remain restrictive enough to allow inflation to fall back toward the 2 percent objective over time. Most participants judged that one additional increase in the federal funds rate would likely be appropriate at future meetings, while some thought that further increases might not be necessary.
Participants discussed a number of risk management considerations that could influence future policy decisions. With inflation remaining well above the Fed's longer-run objective and the labor market remaining tight, most participants continued to see upside risks to inflation. These include a longer-than-expected persistence of the overall supply-demand imbalance, as well as risks from global oil markets, possible upward shocks to food prices, the impact of a strong housing market on housing inflation, and the possibility of a more limited decline in commodity prices. A number of participants commented that while economic activity was resilient and the labor market remained strong, risks to economic activity remained on the downside and risks to the unemployment rate on the upside. Risks include a larger-than-expected lag in the macroeconomic impact of tighter financial conditions, the impact of trade union strikes, a slowdown in global growth, and continued weakness in the commercial real estate (CRE) sector. Participants generally noted that the focus was on balancing the risks of too much austerity against the risks of not enough.
In discussing the economic outlook, participants' economic forecasts were stronger than previously projected in July, as consumer and business spending appeared to be more resilient to tight financial conditions than previously expected. Participants believed that subsequent GDP growth this year would be affected by the auto workers' strike, and that these effects would be offset by a small boost to GDP growth next year, but the size and timing of the effects were highly uncertain. Participants projected that average real GDP growth in 2024 to 2026 would be lower than this year and would be lower than participants' expectations for potential output growth. Over the next few years, potential output growth will be dampened by the lagged effects of monetary policy action.
Participants expected the unemployment rate to remain roughly unchanged through 2026, as upward pressure from real GDP growth below potential output would be offset by downward pressure from further improvements in labor market functioning. Overall and core personal consumption expenditures (PCE) price inflation will be around 3.5% by the end of the year. As supply and demand in the product and labor markets continue to evolve in a better direction, inflation is expected to move lower in the coming years. By 2026, headline and core PCE price inflation will be close to 2 percent.