Fed Ready to Boost US Inflation, FOMC Minutes Indicate

Many Federal Reserve policy-makers are apparently ready to ease monetary policy "before long" to stimulate inflation and lift the struggling U.S. economy, according to minutes taken during the Fed’s September 21 session of the Federal Open Market Committee (FOMC).

The FOMC’s official statement last month noted that inflation was "somewhat below" desired levels. The minutes from the meeting elaborate and provide background:

"Several members noted that unless the pace of economic recovery strengthened or underlying inflation moved back toward a level consistent with the Committee’s mandate, they would consider it appropriate to take action soon."

To that end, the addition of inflation language within the statement was deemed "appropriate" in order to "make it clear that underlying inflation had been running below levels that the Committee judged to be consistent with its mandate for maximum employment and price stability, in part to help anchor inflation expectations."

Since the Fed’s meeting, several economic reports, including worse-than-expected jobs data for September, have most market players speculating that a second round of easing is forthcoming in November. Speculation may turn to reality.

"Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC’s dual mandate, it would be appropriate to provide additional monetary policy accommodation. However, others thought that additional accommodation would be warranted only if the outlook worsened and the odds of deflation increased materially," the FOMC minutes stated.

The outlook appears worse, but the second condition — where inflation/deflation is at now — is currently unknown. September’s inflation rate will be revealed in the Labor Department’s Consumer Price Index report that is scheduled for release on Friday, October 15.

The August inflation core rate came in at 0.9 percent over the prior 12 months. The level of increase has been the same since April, and the smallest since 1966. It is below the Fed’s target range of 1-2 percent.

The entirety of the minutes and most recent statement may be read on the Federal Reserve website.

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