The FOMC minutes for the December meeting revealed that policymakers were optimistic about the path of economic expansion. This was partly a result of the government’s fiscal stimulus. On the tax cut, some members judged that it would help boost both capital and household spending, although the magnitude remains uncertain. The December rate hike of +25 bps was data-dependent but a key factor was the strong employment market. While wage growth was still "modest", a few members forecast it to accelerate as the job market tightened further. Many members expected that the tightening labor market would lead to higher inflation in the medium- term, but some continued to judge that core inflation would persistently stay below the 2% target. The rate hike in December was not unanimous as Chicago Fed President Charles Evans dissented.

The members generally agreed that economic activity had been "rising at a solid rate" and that "the labor market had continued to strengthen". The acknowledged the solid payrolls increase and the decline in the unemployment rate, "averaging through fluctuations associated with the recent hurricanes". The Summary of Economic Projections revealed that three members revised lower their estimates for the longer-run unemployment rate.


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The inflation remained largely unchanged from the October meeting. The members noted that both headline and core inflation continued to run "below that +2% target". However, they also noted that monthly core inflation had "edged up" recently, while "a couple" of participants indicated that year-over-year core inflation "appeared to be stabilizing". The debate over the nature of weak inflation continued. While some continued to judge the soft price levels were driven by "transitory factors", some noted that the secular trends are "muting inflation". As a result, two members lowered their core PCE projections for 2018, while others "generally viewed the medium-term outlook as little changed". A new ingredient in the the minutes was the risk that inflation pressures could build "unduly" if tax reform or financial conditions push output "well beyond" potential.

Tax Reform Plan

An important part of the optimism over the economic outlook was driven by the tax reform plan. "Many participants" expected the personal tax cut would "provide some boost to consumer spending" while "a few participants" noted that expectations of tax reform may have already raised consumer spending somewhat. Meanwhile, "a number" of participants noted that they were "uncertainty about the magnitude of the effects of tax reform on consumer spending". Meanwhile, "many participants" noted that the corporate tax cut could "provide a modest boost to capital spending, although the magnitude of the effects was uncertain".

Monetary Policy Outlook

On the whole, the members viewed the risks to growth as "balanced". The minutes noted that "most participants reiterated their support for continuing a gradual approach to raising the target range, noting that this approach helped to balance risks to the outlook for economic activity and inflation". This view was partly offset by "a few participants" who "were not comfortable with the degree of additional policy tightening through the end of 2018 implied by the median projections for the federal funds rate in the December SEP". This divergence reflected the different views of the members on the inflation outlook.


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