Excerpts from the minutes of the FOMC's December 12-13, 2017:
Participants expected moderate growth in consumer spending in the near term, underpinned by ongoing strength in the labor market, further improvements in households' net worth, and buoyant consumer sentiment. Business contacts in a few Districts reported strong pre-holiday sales. Many participants expected the proposed cuts in personal taxes to provide some boost to consumer spending. A few participants noted that expectations of tax reform may have already raised consumer spending somewhat to the extent that those expectations had spurred increases in asset valuations and household net worth. A number of participants expressed uncertainty about the magnitude of the effects of tax reform on consumer spending.
Many participants judged that the proposed changes in business taxes, if enacted, would likely provide a modest boost to capital spending, although the magnitude of the effects was uncertain. The resulting increase in the capital stock could contribute to positive supply-side effects, including an expansion of potential output over the next few years. However, some business contacts and respondents to business surveys suggested that firms were cautious about expanding capital spending in response to the proposed tax changes or noted that the increase in cash flow that would result from corporate tax cuts was more likely to be used for mergers and acquisitions or for debt reduction and stock buybacks.
In their discussion of monetary policy, participants saw the outlook for economic activity and the labor market as having remained strong or having strengthened since their previous meeting, in part reflecting a modest boost from the expected passage of the tax legislation under consideration. Regarding inflation, participants generally viewed the medium-term outlook as little changed, and a majority commented that they continued to expect inflation to gradually return to the Committee's 2 percent longer-run objective. A few participants again noted that transitory factors had likely held down inflation earlier this year. However, several participants observed that survey-based measures of inflation expectations or market-based measures of inflation compensation remained low, or that other persistent factors may be holding down inflation, which would present challenges for the Committee in promoting a return of inflation to 2 percent over the medium term.
Members acknowledged that hurricane-related disruptions and rebuilding had affected economic activity, employment, and inflation in recent months but had not materially altered the outlook for the national economy. They continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. Members expected inflation on a 12-month basis to remain somewhat below 2 percent in the near term. They also expected inflation to stabilize around the Committee's 2 percent objective over the medium term, but a couple of members expressed concern about whether inflation would return to 2 percent on a sustained basis in the medium term if the Committee increased the target range for the federal funds rate at the pace that is implied by the medians of the projections from the December SEP. Members saw the near-term risks to the economic outlook as roughly balanced, but they agreed to monitor inflation developments closely.