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Please consider the Minutes of the Federal Open Market Committee for the meeting held on April 30 and continued on May 1.

Financial Stability

Among those participants who commented on financial stability, most highlighted recent developments related to leveraged loans and corporate bonds as well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that heightened leverage and associated debt burdens could render the business sector more sensitive to economic downturns than would otherwise be the case. A couple of participants suggested that increases in bank capital in current circumstances with solid economic growth and strong profits could help support financial and macroeconomic stability over the longer run. A couple of participants observed that asset valuations in some markets appeared high, relative to fundamentals. A few participants commented on the positive role that the Board's semi-annual Financial Stability Report could play in facilitating public discussion of risks that could be present in some segments of the financial system.

Monetary Policy

In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, and that information received over the intermeeting period showed that economic activity grew at a solid rate. However, both overall inflation and inflation for items other than food and energy had declined and were running below the Committee's 2 percent objective. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. That said, these and other sources of uncertainty remained. In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures.

Continued Low Inflation

Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee's balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee's symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee's objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee's symmetric 2 percent objective—a development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.

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The Fed is as clueless as ever but they will be patient about it.

If the Fed understood what inflation is, we would not be in another massive bubble.

Note the Fed Lie of the Day: "Low Inflation is One of the Major Challenges of Our Time"

Hello Jerome Powell

I addressed the silliness of inflation expectations in Hello Jerome Powell, We Have Questions.

If you have not done so, or if you need a refresher course, please give that a look.

Mike "Mish" Shedlock