The Fed discussed the impact of external developments on the US outlook—notably, the appreciation of the dollar against the currencies of many important trading partners. Given weak growth and inflation in the euro area, further strengthening of the dollar could have an adverse effect on US exports and slow the gradual rise in US inflation towards the Committee’s 2% inflation objective.
FOMC participants had differing views on the extent of remaining slack in labor markets, but “most agreed that underutilization of labor resources remained significant.” This characterization may be retained at the next meeting despite the drop in the unemployment rate.
The minutes reflected the discomfort of several Fed officials over the perceived temporal commitment of the forward guidance language. Forward guidance changes are likely to be made cautiously so as to avoid shocking markets. However, in the October meeting, we look for guidance changes that will underscore the data dependency of the FOMC’s rate outlook and drop the considerable time language.
Credit Agricole