FOMC minutes stress debt ceiling, impacts to broader economy

The Federal Open Market Committee (FOMC) released minutes from its May meeting Wednesday. The minutes showed economic activity expanded at a modest pace in the first quarter, but participants stressed the importance of raising the debt ceiling in a timely manner to avoid the risk of severely damaging the financial system and broader economy.

“The FOMC minutes devoted substantial space to the debt ceiling impasse and the potential ramifications of anything short of a clean resolution,” said NAFCU Chief Economist and Vice President of Research Curt Long. “As far as the economy is concerned, even the Fed will have to content itself with playing second fiddle to Congress for the time being. It is likely the FOMC will hold rates steady at the next meeting, with the debate shaping up as to whether that constitutes a momentary skip or longer-term pause.”

Participants also judged that stress in the banking sector would likely induce banks to tighten lending standards more than they would have in response to higher interest rates alone. There was also a general expression of uncertainty about how much more policy tightening may be appropriate at this time. Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.


continue reading »