How FOMC Members Assessed the US Economy in the July Meeting



Pickup in second quarter GDP acknowledged

FOMC (Federal Open Market Committee) members said in their July meeting that the data received since the June meeting indicated that the US economy’s real GDP growth picked up in the second quarter after a slowdown in the previous quarter. FOMC members highlighted positive growth in household spending (XLY) in the second quarter of this year. There were some concerns about softening motor vehicle sales (CARZ), and as a result, automakers (ADRA) were reportedly adjusting production plans. Lower demand projections from automakers could mean job cuts, translating to further downward pressure on inflation (TIP).

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Labor market conditions continue to improve, but wage growth remains a concern

FOMC members noted that labor market conditions have continued to strengthen since their last meeting in June. The unemployment rate rose marginally in June to 4.4% but remained below the historical average. Members acknowledged the pickup in payrolls and the employment-to-population ratio. There were some members who were concerned about the possibility of substantial overshooting of full employment. Wage growth was a concern, and members cited that companies were now employing fewer experienced workers at a lower wage to keep costs down. Changes in compensation by including non-wage benefits were also dragging down wage growth.

Economic growth and unemployment would lend support to monetary tightening

The FOMC July meeting minutes give an impression that members were content with economic output growth and the labor markets. These economic metrics have been improving for a considerable amount of time, but lagging inflation (VTIP) could limit the efforts of the FOMC members to tighten the monetary policy further. The outlook for economic growth and employment continues to be optimistic in the near term.

In the next part of this series, we’ll look at the Fed’s balance sheet reduction plan.


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