Participants noted that real GDP had expanded at an unexpectedly strong pace in the third quarter, boosted by a surge in consumer spending. Nevertheless, participants judged that aggregate demand and aggregate supply continued to come into better balance, as a result of the current restrictive stance of monetary policy and the continued normalization of aggregate supply conditions. Participants assessed that while labor market conditions remained tight, they had eased since earlier in the year, partly as a result of recent increases in labor supply. Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation. In addition, they noted that financial conditions had tightened significantly in recent months. Participants noted that inflation had moderated over the past year but stressed that current inflation remained unacceptably high and well above the Committee’s longer-run goal of 2 percent. They also stressed that further evidence would be required for them to be confident that inflation was clearly on a path to the Committee’s 2 percent objective. Participants continued to view a period of below-potential growth in real GDP and some further softening in labor market conditions as likely to be needed to reduce inflation pressures sufficiently to return inflation to 2 percent over time.
In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks. Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient. Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply. Participants noted the importance of continuing to communicate clearly about the Committee’s data-dependent approach and its firm commitment to bring inflation down to 2 percent.
All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee’s objective. Participants also observed that the continuing process of reducing the size of the Federal Reserve’s balance sheet was an important part of the overall approach to achieving their macroeconomic objectives. A few participants noted that the process of balance sheet runoff could continue for some time, even after the Committee begins to reduce the target range for the federal funds rate. Several participants commented on the recent decline in the use of the ON RRP facility, noting that the use of the facility had been responsive to market conditions.
From the Fed: Minutes of the Federal Open Market Committee, October 31–November 1, 2023. Excerpt: