Federal Reserve officials judged at their latest meeting thattheir patient approach to interest-rate change would be appropriate“for some time,” and many sided with Chairman Jerome Powell's viewthat the recent dip in inflation was probably temporary.

“Members observed that a patient approach to determining futureadjustments to the target range for the federal funds rate wouldlikely remain appropriate for some time,” according to minutes ofthe Federal Open Market Committee's (FOMC's) April 30–May 1meeting, released Wednesday in Washington.

U.S. stocks remained lower and Treasuries held gains, as theminutes reinforced the message from Powell's post-meeting pressconference, at which he said the level of interest rates wasappropriate for now and there wasn't a strong case to move ineither direction. The record also showed officials becoming moreoptimistic about the U.S. 2019 economic outlook before PresidentDonald Trump's decision to raise tariffs on Chinese imports. Theyalso had a debate about the future composition of the bondportfolio.

Many participants viewed the recent easing in inflation “aslikely to be transitory, and participants generally anticipatedthat a patient approach to policy adjustments was likely to beconsistent with sustained expansion of economic activity, stronglabor market conditions, and inflation near the committee'ssymmetric 2 percent objective,” the minutes said.

The Fed's preferred gauge of price pressures, excluding food andenergy, slowed to a 1.6 percent increase in the 12 months throughMarch, despite solid economic growth and a tight labor market.

At the meeting, the FOMC left its benchmark policy rateunchanged, in a 2.25 percent to 2.5 percent target range, andreiterated its pledge to be“patient” in weighing future moves. Thecommittee next gathers on June 18-19.

Fed officials received a staff presentation on two approaches toadjusting the maturity composition of the central bank's portfolio.One approach would return the portfolio to a composition similar tooutstanding Treasury securities, while another would result in ashorter-term maturity structure of three years or less.

Portfolio Discussion

The staff analysis showed that a move to the shorter-termportfolio “would put significant upward pressure on term premiumsand imply that the path of the federal funds rate would need to becorrespondingly lower to achieve the same macroeconomic outcomes asin the baseline outlook,” the minutes said.

In their discussion of a portfolio proportional to the Treasurymarket, “participants observed that moving to this target” ofportfolio composition “would not be expected to have much effect oncurrent staff estimates of term premiums and thus would likely notreduce the scope for lowering the target range for the federalfunds rate target in response to adverse economic shocks.”

Several participants judged that the proportional approach wouldbe “well-aligned with the committee's previous statements thatchanges in the target range for the federal funds rate are theprimary means by which the committee adjusts the stance of monetarypolicy.” At the same time, some of the debate focused on how muchcapacity each strategy would allow for adding economic stimulusthrough a maturity extension program.

Investors have been betting the Fed will cut interest rateslater this year, partly on concern over inflation runningpersistently below its 2 percent target, which prices have done formost of the last seven years.

On the economic outlook, “many participants suggested that theirown concerns from earlier in the year about downside risks fromslowing global economic growth and the deterioration in financialconditions or similar concerns expressed by their business contactshad abated,” according to the minutes.

The country's gross domestic product (GDP) expanded at a 3.2percent annual pace in the first quarter, surpassing expectations,and unemployment hit a 49-year low in April. The U.S. expansion ison track to become the longest on record in July.

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