WASHINGTON (MNI) – The following is an excerpt from the minutes of
the Federal Open Market Committee’s November 1-2 meeting and the
discussion the FOMC members had about uncertainty risks associated with
the FOMC’s economic projections, released Tuesday.
Uncertainty and Risks
In their assessments of the uncertainty and risks associated with
their projections, a substantial majority of participants continued to
judge that the levels of uncertainty associated with their projections
for economic growth, the unemployment rate, and inflation were greater
than the average levels that had prevailed over the past 20 years.1 They
pointed to a number of factors that raised their assessments of
uncertainty regarding output growth and unemployment, including concerns
about the ongoing developments in Europe, the severity of the recent
recession, and the pace at which the numerous financial and economic
headwinds buffeting the economy will recede. However, slightly fewer
participants reported a higher-than-average degree of un-certainty
around their inflation projections than in June. Participants noted that
uncertainties about the pace of economic recovery and the effects of the
Federal Reserves extraordinary monetary policy accommodation, as well
as the timing of exit from it, were significant sources of uncertainty
in the outlook for inflation. However, a number of participants
highlighted that inflation currently remains anchored by stable
longerterm inflation expectations.
Although several participants noted that the risks of a near-term
recession had likely diminished, most participants continued to judge
that the balance of risks to economic growth was weighted to the
downside (that is, they judged that economic growth was more likely to
be below their projection of its most likely outcome than above it). The
remaining participants saw the risks as balanced. The most frequently
cited downside risks to growth included possible financial market and
economic spillovers from an intensification of the financial strains in
Europe, vulnerabilities related to weak consumer and business
confidence, the possible effects on spending of uncertainties about
regulatory policy, and the potential consequences of
larger-than-expected near-term fiscal consolidation. The risks
surrounding participants forecasts of the unemployment rate shifted
higher, with a larger number of participants relative to June viewing
the risks to their projections as weighted to the upside, and the
remaining participants seeing the risks as broadly balanced.
A majority of the participants continued to judge the risks to
their projections of overall and core inflation to be broadly balanced.
Compared with their assessments in June, a smaller number of
participants viewed the risks to inflation as being weighted to the
upside, and more participants indicated that the risks were weighted to
the downside; the changes left the number of participants who saw a skew
in either direction more evenly distributed. Some participants saw a
risk that elevated resource slack could put more downward pressure on
inflation than expected. Nevertheless, some participants noted the risk
that commodity prices could experience renewed volatility or have a
longer-lasting influence than expected. A few participants pointed to
the possibility that the current highly accommodative stance of monetary
policy, if it were maintained for longer than is appropriate, could lead
to higher inflation expectations and actual inflation; some also thought
that fiscal imbalances could have a similar effect.
** Market News International Washington Bureau: 202-371-2121 **
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