The United States is at the beginning of a slowdown as the economy continues to face significant upside inflation risks and tighter credit conditions, according to new minutes from the July Federal Open Market Committee (FOMC) policy meeting.
(Article cross-posted from our premium news partners at The Epoch Times)
Although the economy has been expanding at a “moderate pace,” the latest credit developments in the “sound and resilient” banking system were “likely to weigh on economic activity” for businesses and households.
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Staff economists no longer see a “mild recession” later this year amid better-than-expected spending and real activity.
“However, the staff continued to expect that real GDP growth in 2024 and 2025 would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level,” the minutes stated.
Most rate-setting committee members agreed that more interest-rate hikes could be needed if additional inflation risks materialize. Participants noted that inflation remained unacceptably high, and that more evidence was needed to determine if price pressures are diminishing on a sustainable basis.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
At the same time, Federal Reserve officials fear that the central bank could tighten too much, producing a series of risks for the broader economy.
“A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee’s goals had become more two sided, and it was important that the Committee’s decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening,” the FOMC minutes stated.
A couple of participants in the July FOMC meeting supported hitting the pause button. There were indicators that the jobs arena was going through a better balance despite the tight labor market.
“The labor market remained very tight, though the imbalance between demand and supply in the labor market was gradually diminishing,” the minutes said.
The U.S. financial markets maintained their losses following the release of the minutes, as the leading benchmark indexes were in the red.
Treasury yields were mostly up, with the benchmark 10-year yield adding nearly 4 basis points to 4.26 percent. The two-year yield picked up 3 basis points to above 4.98 percent.
The U.S. Dollar Index, a measurement of the greenback against a basket of currencies, strengthened above 103.40 after the minutes.