Economic Factors Support Growth, FOMC Says

Members of the Federal Open Market Committee (FOMC) – the Federal Reserve's monetary policy-setting arm – viewed factors such as strength in the labor market, improved consumer confidence and diminished downside risks as "likely to support solid growth over the remainder of the year," according to minutes from the committee's April-May meeting released Wednesday.

"The minutes from the most recent FOMC meeting show broad optimism among committee members with regard to economic growth," said NAFCU Vice President of Research and Chief Economist Curt Long. "Most regard weak inflation as likely to reverse course without any policy changes, but at least a few members have begun to publicly discuss the possibility of a rate cut if those readings do not return to the committee's 2-percent target. Since that meeting, of course, the return of a trade standoff with China has weighed on markets. If that seeps into the broader economy, it could provide another reason to cut rates."

The implications of continued low inflation readings were also discussed at the most recent meeting. Participants noted that if inflation does not show signs of increasing in upcoming quarters, it could become difficult to sustain the committee's symmetric 2 percent objective over the long run.

The committee again cited the waning impetus from fiscal policy to slow GDP growth over the medium term, though some participants thought that low mortgage rates could boost residential construction and have a positive impact on GDP growth in the near term.

Following the April-May meeting, the committee left the federal funds target rate at a range of 2.25 to 2.5 percent.

Wednesday's minutes also revealed:

  • sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2 percent objective are the most likely outcomes;
  • consumer credit conditions remained broadly supportive of growth in household spending; and
  • the build-up in overall nonfinancial business debt to historical highs relative to GDP was viewed as a factor that could amplify adverse shocks to the business sector and the economy more broadly.

The FOMC will meet again June 18-19, and earlier this month released its 2020 meeting dates.