Highlights
The minutes of the FOMC meeting held on January 30-31, 2007 indicate that the primary concern of the Fed policy committee is the risk of higher inflation. The FOMC acknowledged that recent data showed improved at the margin for core CPI and core PCE inflation. However, the economy is seen as only barely below potential in coming quarters with labor markets still relatively tight. Implied in the discussion, the FOMC appears to see a resumption of interest rate increases as a lowered risk but still a significant possibility.

The FOMC meeting was held when advance fourth quarter GDP was released, showing a strong-than-expected fourth quarter. Housing was seen to be leveling off. The consumer sector was seen as robust and manufacturing was only in a temporary and modest inventory adjustment.

The FOMC most heavily relied upon staff forecasts for moderation in economic growth to underpin their expectation for an easing in core inflation, with earlier interest rate increases playing a key role.

"However, inflation pressures seemed likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judged that some inflation risks remained."

"Over the next several quarters, economic activity would likely advance at a pace at or modestly below the economy's trend rate of growth. Thereafter, growth was likely to return to around its trend rate, which several participants viewed as likely to be higher than the staff's estimate. Favorable readings on core inflation and lower energy prices had also improved the odds that inflation pressures would diminish. However, it was noted that the prevailing level of inflation was uncomfortably high, and resource utilization was elevated. The upside risks to inflation remained the Committee's predominant concern."

The Fed is making it clear that it is being cautious to not declare victory too soon - inflation trends are noted as taking time to clearly establish and that lower core inflation has not been yet established.

"All meeting participants expressed some concern about the outlook for inflation. To be sure, incoming data had suggested some improvement in core inflation, and a further gradual decline was seen as the most likely outcome, fostered in part by the continued stability of inflation expectations. However, participants did not yet see a downtrend in core inflation as definitively established."

"All members agreed that the statement should continue to stress that some inflation risks remained and note that additional policy firming was possible."

All in all, the FOMC see the economy much on the Goldilocks path for a soft landing as housing is leveling off and other sectors continue to contribute to growth. Regardless of whether the Fed remains on hold, nudges rates up, or nudges rates down, the economy is in good health.

The next FOMC meeting is scheduled for two days, March 20 and 21.

2007 Release Schedule

Released On: 1/3 2/21 4/11 5/30 7/19 8/28 10/9 11/20 Released For: Dec Jan Mar Apr Jun Jul Sep Oct