U.S. central bankers, meeting in early November, said they expected consumers to continue or even boost savings in the next few quarters while anticipating an elevated unemployment rate over the next few years.
The meeting, one of eight scheduled for this year, brought together leading figures from the Federal Reserve System to discuss what steps to take to meet the bank’s “dual mandate” of promoting maximum employment and stable prices.
The committee, a money-policy making group known as the Federal Open Market Committee, gathers in Washington and includes mostly Presidential appointees from Academia and the financial industry as well as Presidents of regional Federal Reserve banks.
The Federal Reserve released the minutes of the Nov 3-4 meeting today.
Included among discussions of the nation’s economy, the financial system and Fed policies, officials offered their views and outlook for the circumstances facing consumers and workers.
Consumers Set to Keep Saving or Save Even More
The Fed noted several factors would weigh on consumer confidence and the growth of consumer spending for some time to come, including “uncertain job prospects, slow income growth, and tight credit, as well as wealth levels that remained relatively low despite the recent rise in equity prices and stabilization in house prices.”
“In such an environment, households' saving behavior was an important source of uncertainty in the outlook,” the Fed said, according to the minutes.
“Participants continued to believe that the most likely outcome was for the saving rate to remain near its average level over the past few quarters or to edge up gradually. However, they could not completely discount the possibility of a further substantial rise in the saving rate as households took further steps to repair their balance sheets.”
In its views of the labor market, the Fed reported that its business contacts said they would be cautious in hiring while looking to save costs.
“Businesses would be able to meet any increases in demand in the near term by raising their employees’ hours and boosting productivity, thus delaying the need to add to their payrolls,” the Fed noted, citing recent data pointing to “rapid productivity growth in recent months.”
Meeting participants also offered several other reasons why employment gains could suffer.
“Moreover, the need to reallocate labor across sectors as the recovery proceeds, as well as losses of skills caused by high levels of long-term unemployment and permanent separations, could limit the pace of gains in employment.
Participants discussed the possibility that this recovery could resemble the past two, which were characterized by a slow pace of hiring for a time even after aggregate demand picked up.”
Prices stable in near term
Regarding the prices of goods in the near term, the Fed said a slowdown in wages and labor costs this year were factors that would put “downward pressure” on inflation.
Long-term, however, participants had mixed views on prices.
“Overall, many participants viewed the risks to their inflation outlooks over the next few quarters as being roughly balanced,” the Fed noted.
A case for long-term pressure for higher inflation was due to “the possibility that inflation expectations could rise as a result of the public's concerns about extraordinary monetary policy stimulus and large federal budget deficits.”
Looking ahead, the Fed expected slow growth.
“The recovery appeared to be continuing and was expected to gradually strengthen over time. Still, most members projected that over the next couple of years, the unemployment rate would remain quite elevated and the level of inflation would remain below rates consistent over the longer run with the Federal Reserve's objectives.”