• The minutes from the Federal Open Market Committee’s (FOMC) June meeting highlighted the downside risks to the economic outlook and members’ feeling that they “had increased significantly over recent weeks.”
  • The factors cited as raising uncertainty include: weakening business confidence, business spending, manufacturing activity, trade, and global growth. Among these, trade tensions loom the largest as the underlying cause of the deterioration in confidence and rise in uncertainty.
  • Participants also discussed the labor market and soft inflation. Notably, citing low wage inflation, “several participants…revised down their SEP estimate of the longer-run normal rate of unemployment.”
  • The decision to keep rates on hold at the June meeting (and not cut immediately) was influenced by the relatively recent deterioration in indicators. This requirement for more evidence appears to have been met, at least according to Chair Powell’s testimony this morning that noted crosscurrents to the outlook continuing following the Fed’s June meeting.

Key Implications

  • While maintaining its economic outlook, the minutes show FOMC members moving toward a “risk management” framework, and increasingly in favor of cutting rates in order to “cushion the effects of possible adverse shocks to the economy.”
  • In addition to heightened uncertainty on the global front, the soft inflation environment and few signs that wage growth has broken out of its recent holding pattern provides support for a turn to more accommodative policy. This is particularly true as inflation expectations also appear to have moved lower.
  • The evolution of economic data and key event risks will determine the future course of monetary policy. While there is good reason to expect the data to hold up, it is much harder to guess on the outcome of events, which as these minutes note, are clearly two-sided.


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