Participants of the late-January meeting round believed that the economy continued to grow at an above-trend pace from mid-December through late-January, generally revising up their economic projections since then.
The Committee viewed the impacts of tax cut as though it "might be somewhat larger in the near term than previously thought".
FOMC members viewed the labor market in a positive light, with solid job gains and a jobless rate measure that is near a two-decade low. Moreover, they suggested that broader measures of slack were returning to pre-recession levels.
Wage pressures were quoted by several participants but broad based moves remained absent. Moreover, some participants believed that the TCJA-related payments to employees could materialize in bonuses or other one-time payments and not become permanent.
Discussions on inflation generally pointed to expectations for gradual increases, with some already suggesting that some were already able to raise prices due to rising costs. However, participants also said that the TCJA may lead firms to cut prices to remain competitive, posing some downside risk.
Participants concluded that "upside risks" had increased due to tax cuts, increased consumer spending, and improving global growth, with only a ‘couple’ worried about economy.
A majority of participants believed that the improved outlook for growth "raised the likelihood that further gradual policy firming would be appropriate."
Key Implications
In her last meeting as Chair, Janet Yellen passed the economic baton to Jerome Powell. And what a baton it is, with unemployment near two-decade lows, solid growth momentum, additional fiscal stimulus on the way, healthy global growth, and nascent signs of wage and inflation pressures.
In fact, it would appear that the economy is almost too healthy for its own good, particularly in light of the fiscal stimulus coming online this year. From this viewpoint, Chair Powell and team will have their hands full, as they try to analyze every bit of information for signs of economic overheating.
All in all, the Fed minutes suggest that the improved outlook raised the likelihood of further gradual policy firming, corroborating the sentiment in the Fed statement itself which added the word "further" to the text. While March is not a done deal, it would take some pretty dreadful data to derail a 25 basis point hike – making Powell one-for-one should it materialize.
