FOMC minutes see dual-mandate dilemma ahead

Minutes from FOMC’s December meeting indicate that some participants are concerned about the risks of stalling progress in bringing down inflation to target. Simultaneously, there is apprehension about downside risks to the economy resulting from “overly restrictive monetary policy”. Hence, a few suggested that Fed could “face a trade off between its dual-mandate goals in the period ahead”.

Significantly, the minutes indicate a consensus among participants that, considering the improved inflation outlooks, a lower target range for federal funds rate would likely be appropriate by the end of 2024. However, they also recognized “an unusually elevated degree of uncertainty” in their economic outlooks, leaving room for the possibility that economic developments might necessitate further rate increases or maintaining the current target range longer than currently anticipated.

The emphasis in the discussions was on the need for a “careful, data-dependent approach” to policy decisions. The minutes also highlighted that “it would be appropriate for policy to remain at a restrictive stance for some time,” underlining the commitment to ensure that inflation is sustainably moving towards the Committee’s objective.

Participants also discussed risk-management considerations for future policy decisions. They acknowledged that while upside risks to inflation have decreased, inflation is “still well above the Committee’s longer-run goal.” Moreover, the minutes reflected a concern about the duration for which a restrictive monetary policy would be necessary, pointing to “downside risks to the economy” associated with such a stance. A few participants raised the possibility of a trade-off between the Fed’s dual-mandate goals.

Full FOMC minutes here.