In the minutes of the Federal Open Market Committee’s (FOMC) September meeting, it discussed the uncertainties in the financial markets and their impact on the U.S. economy.
Among FOMC members, uncertainties about the future of the economy persist. Many participants continue to observe upside risks to inflation.
Unemployment and Economic Risks
A majority of the members express concerns about ongoing downward economic risks and the risk of rising unemployment.
According to the minutes, a significant portion of the participants views the future trajectory of the economy as highly uncertain. While the Federal Reserve (Fed) is said to have committed to keeping interest rates unchanged, there is a suggestion that, with 7 out of 12 votes in the new projections, there may be a need for an additional interest rate increase by the end of the year to ensure that inflation returns to the Fed’s 2% target.
Challenges in Economic Assessment
The minutes discussed the challenges in assessing the economy, including data volatility, prior statistical revisions, the neutral interest rate, the impact of “real” interest rates, tight credit conditions, and corporate borrowing and spending habits as key parameters.
According to the minutes, policymakers noted increased risks for economic growth and employment, highlighting that tightness in financial markets, slowing global growth, and labor strikes have added to the risks for economic growth and employment.
Interest Rate Hikes and Concerns
Fed officials are concerned about the adverse effects of aggressive interest rate hikes on the unemployment rate, even though inflation continues to hover above 3%.
Despite the aggressive interest rate hikes over the past 19 months, Fed officials emphasized that the stable performance of the economy has kept unemployment low. At the same time, the majority of members noted that the risks of a rise in the unemployment rate persist.