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"The minutes to the September FOMC meeting were largely in line with our expectation and, in our view, contained relatively little new information. We believe the main goals of the committee were to cite reasons for deferring action at the September meeting while continuing to signal that near-term action was likely. It did this through emphasizing disagreement over how much slack remained in labor markets while also emphasizing that the decision was a "close call" and noting that several members saw a rate hike "relatively soon" as appropriate.
Our base case remains for a December rate increase, but the FOMC minutes reveal widespread discord within the committee on a variety of issues.
These divisions, plus the tendency of the incoming data to be positive, but with blemishes, means a rate hike in December is not a done deal by any means.
FOMC participants saw the economic outlook as little changed at the September meeting and held favorable views about the pace of private consumption growth, labor market developments, and diminished external risks. In fact, a "substantial majority" of participants view near-term risks to the outlook as "roughly balanced". However, this was not enough to kick the committee into action as it did last December, given the disagreement over the amount of labor market slack. Several participants cited the rise in the participation rate and employment-to-population ratio as "welcome developments" and indicative of slack in labor markets. Others pointed to the slowdown in employment growth - which many expect to happen when the economy is operating at full employment - as evidence that slack had been removed. While we see little evidence that the rise in participation reflects entrants in the workforce - entrants into the workforce have actually declined in 2016 - some members of the committee see it differently.
Participants also disagreed about how much monetary policy should seek to allow the unemployment rate to undershoot the committee's estimates of its long-run value relative to what is presented in their modal forecasts. A "number" noted that some undershooting was appropriate, but there was disagreement over the benefits and costs of pushing this further. While several participants noted that this could ignite inflationary and stability concerns, others thought the historical experience was only of "limited applicability," given the low growth, low inflation environment".
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