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FOMC minutes show the Fed is worried about inflation; but no hike soon

FXStreet (San Francisco) - The minutes for the Oct 28-29 FOMC meeting showed the Federal Reserve is concerned about disinflation as are other central banks did. Overall a pessimistic stench in the report, but the feeling is that the Fed is saying they will not hike rates soon.

Fed is worried about a sub-2% inflation 'for quite some time," and officials observed the need to monitor the falling inflation expectations since 'most participants anticipated that inflation was likely to edge lower in the near term, reflecting the decline in oil and other commodity prices and lower import prices.'

Officials discussed adjustments to guidance with several members expressing the need to enhance summary of economic projections. Some wanted to remove the 'considerable time' words from the statement. 'Most officials support keeping FFR low even after reaching goals'.

The Fed noted limited impact from global slowdown; however the risk is increasing to the downside in Europe, China and Japan.

Participants consider that 'the underutilization of labor resources was gradually diminishing,' and the labor market conditions improved somewhat further.

Key quotes

Most participants anticipated that inflation was likely to edge lower in the near term, reflecting the decline in oil and other commodity prices and lower import prices. These participants continued to expect inflation to move back to the Committee's 2 percent target over the medium term as resource slack diminished in an environment of well-anchored inflation expectations, although a few of them thought the return to 2 percent might be quite gradual.

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.

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.

The recovery in the housing sector remained slow despite low interest rates and some recent improvement in the availability of mortgage credit.

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