August 19, 2021

FOMC minutes reveal pressure on maximum-employment goal, improvements in struggling sectors and economic growth

moneyMinutes from the Federal Open Market Committee's (FOMC) July video conference meeting revealed that despite strong indicators of economic activity and employment, a vast majority of participants judged that the Committee’s standard of “substantial further progress” toward the maximum-employment goal had not been met.

Looking ahead, most participants noted that - provided that the economy were to evolve broadly as they anticipated - it could be appropriate to start reducing the pace of asset purchases this year. They saw the Committee's "substantial further progress" criterion as satisfied with respect to the price-stability goal, and as close to being satisfied, with respect to the maximum-employment goal.

"The FOMC appears set to taper asset purchases later this year. The committee will be straining to assure markets that this action does not provide any new information on when the next rate hike may be," said NAFCU Chief Economist and Vice President of Research Curt Long. "While inflation has satisfied conditions that the committee set for tightening policy, progress in the labor market has been much slower in coming. NAFCU continues to expect no rate hike for at least another year."

Other key findings from the minutes released Wednesday include:

  • In discussion of current conditions, most participants noted that with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen;
  • the sectors most adversely affected by the pandemic had shown improvement but had not fully recovered;
  • Inflation had risen, largely reflecting transitory factors; and
  • Economic growth was expected to remain strong over the second half of the year, supported by the further reopening of the economy, accommodative financial conditions, and easing of supply constraints. Nevertheless, participants generally saw supply disruptions and labor shortages as likely to persist over the second half of the year.

The FOMC is expected to next meet September 21-22.