- Minutes from the Oct. 31-Nov. 1 Federal Open Market Committee meeting indicate some worry about rising financial markets.
- The meeting minutes also included a discussion about possibly changing the central bank's approach to addressing inflation.
Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy.
Minutes from the Oct. 31-Nov. 1 Federal Open Market Committee meeting indicate members with almost universally positive views on growth — the labor market, consumer spending and manufacturing all were showing solid gains. While there were disagreements on the pace of inflation, and even a discussion about changing the Fed's approach to price stability, the sentiment otherwise was largely positive.
Moreover, they said the picture could get even better if Congress lowers corporate taxes as part of the reform plan making its way through the Senate.
However, when it came to evaluating market conditions, the talk took a more cautious tone.
Stocks have been on a tear throughout 2017, setting a series of record highs and adding trillions in value. That's come both on the heels of stronger corporate earnings and hopes that the tax reform plan, which would take the corporate rate from 35 percent to 20 percent, becomes a reality.
Some members feared what would happen if the market suddenly took a hit.
Concerns about the surge in stocks are not new at the Fed, but most officials have downplayed the idea that the market is in a bubble. Wall Street also has been at odds about the market, with Bank of America Merrill Lynch warning of a market top coming in 2018 though Goldman Sachs has predicted another big year.
FOMC members noted multiple areas of positive developments. The labor market is "operating at or above full employment," GDP is likely to "grow at a pace exceeding that of potential output," and even inflation has been slowed only by "temporary or idiosyncratic factors."
But on inflation, the consensus was weaker, with some members disagreeing with the notion that all the softness was due to issues that would fade.
Other members, though, thought the Fed could be in danger of waiting too long for inflation to rise and could risk further instability in the financial markets. Several members said the upcoming data would be critical in determining whether they felt the Fed was close to meeting its 2 percent inflation goal.
As a matter of policy, the committee chose not to hike rates at the meeting, as expected, but members indicated that gradual rate hikes are likely in the future. Markets are assigning a nearly 100 percent probability to a December rate hike, though only factoring in one or two so far for 2018.
Also at the meeting, members discussed the well-publicized reduction of the Fed's $4.5 trillion balance sheet. Under the plan, the central bank is letting a capped level of proceeds from the bonds it owns run off each month. Fed officials agreed the program thus far has run smoothly.
Reference: CNBC
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