“Broad equity price indexes rose over the intermeeting period, likely reflecting in part investors’ perceptions of increased odds for the passage of federal tax legislation and an associated potential boost to corporate earnings,” the minutes stated.
Looking at conditions more broadly, the document said: “Real economic activity appeared to be growing at a solid pace, buttressed by gains in consumer and business spending, supportive financial conditions, and an improving global economy.”
However, the minutes on multiple occasions noted that officials remained unsure over just how much a boost in activity would come from the tax plan. For instance, members were “quite uncertain” about the impact the tax cuts would have on labor supply.
There also was concern, as relayed from business contacts, that the windfall corporations would get from tax cuts would be spent on dividends and share buybacks.
Officials also remained somewhat at loggerheads when it came to inflation. The Fed has consistently missed its 2 percent target for price rises, and members discussed at length the reasons why the reading has remained so low.
Fed officials collectively see inflation likely to meet the target over the medium term, but two members — Neel Kashkari and Charles Evans — voted against the rate hike because they’d like to see more progress on the target.
Most officials “judged that much of the softness in core inflation this year reflected transitory factors and that inflation would begin to rise as the influence of these factors waned.” However, there was some concern “that inflation might stay below the objective for longer than they currently expected.”
On other matters, committee members also were largely dismissive about concerns over the yield curve, or the difference in bond yields across various maturities. While an inverted curve — when short-term rates are higher than longer-term rates — often signals a recession, Fed officials said other factors were likely at play that are less ominous.
“They generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards. However, several participants thought that it would be important to continue to monitor the slope of the yield curve,” the minutes said.
There again were some concerns about market valuations.
While generally looking favorably on the rising stock market indexes, some officials have expressed concern that keeping policy overly accommodative could inflate bubbles.
“In light of elevated asset valuations and low financial market volatility, a couple of participants expressed concern that the persistence of highly accommodative financial conditions could, over time, pose risks to financial stability,” the minutes said.