by Calculated Risk on 11/19/2014 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, October 28-29, 2014. Excerpts:

In their discussion of the economic situation and the outlook, most meeting participants viewed the information received over the intermeeting period as suggesting that economic activity continued to expand at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate; on balance, participants judged that the underutilization of labor resources was gradually diminishing. Participants generally expected that, over the medium term, real economic activity would increase at a pace sufficient to lead to a further gradual decline in the unemployment rate toward levels consistent with the Committee's objective of maximum employment. Inflation was continuing to run below the Committee's longer-run objective. Market-based measures of inflation compensation declined somewhat, while survey-based measures of longer-term inflation expectations remained stable. Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee's 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee's objective for quite some time. Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.
...
In their discussion of communications regarding the path of the federal funds rate over the medium term, meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook. Most participants judged that it would be helpful to include new language in the Committee's forward guidance to clarify how the Committee's decision about when to begin the policy normalization process will depend on incoming information about the economy. Some participants preferred to eliminate language in the statement indicating that the current target range for the federal funds rate would likely be maintained for a "considerable time" after the end of the asset purchase program. These participants were concerned that such a characterization could be misinterpreted as suggesting that the Committee's decisions would not depend on the incoming data. However, other participants thought that the "considerable time" phrase was useful in communicating the Committee's policy intentions or that additional wording could be used to emphasize the data-dependence of the Committee's decision process. A couple of them noted that the removal of the "considerable time" phrase might be seen as signaling a significant shift in the stance of policy, potentially resulting in an unintended tightening of financial conditions. A couple of others thought that the current forward guidance might be read as suggesting an earlier date of liftoff than was likely to prove appropriate, given the outlook for inflation and the downside risks to the economy associated with the effective lower bound on interest rates. With regard to the pace of interest rate increases after the start of policy normalization, a number of participants thought that it could soon be helpful to clarify the Committee's likely approach. It was noted that communication about post-liftoff policy would pose challenges given the inherent uncertainty of the economic and financial outlook and the Committee's desire to retain flexibility to adjust policy in response to the incoming data. Most participants supported retaining the language in the statement indicating that the Committee anticipates that economic conditions may warrant keeping the target range for the federal funds rate below longer-run normal levels even after employment and inflation are near mandate-consistent levels. However, a couple of participants thought that the language should be amended in light of the prescriptions suggested by many monetary policy rules and the risks associated with keeping interest rates below their longer-run values for an extended period of time.
emphasis added