FOMC MINUTES: Participants generally saw upside risks to price stability as elevated, while downside risks to maximum employment goal had moderated a bit

Inflation/Economic activity

• The majority of participants commented that most measures of medium- and longer-term inflation expectations remained at levels consistent with the Committee's 2 percent objective.
• The majority of participants highlighted the possibility that, after several years of inflation above 2 percent, continued elevated inflation rates could begin to affect inflation expectations and wage- and price-setting decisions.
• Most participants remarked that growth in economic activity that exceeded that of potential output, owing in part to strong AI business investment, could contribute to more persistent inflationary pressures.
• With respect to household spending, most participants observed that stock market gains and federal income tax refunds sent earlier this year had provided support to consumer spending, particularly among higher-income households.
• Some participants observed that the sharp rise in input costs reported in business surveys raised concerns about the potential for higher energy and commodity costs to pass through more broadly to final goods prices.
• Several participants noted, however, that firms in their Districts reported that they had been cautious about increasing prices, citing concerns that higher prices could reduce demand or their market shares.
• Many participants noted that ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology products and electricity.
• Some participants remarked that productivity gains associated with AI adoption would eventually reduce production costs and increase aggregate supply, which should put downward pressure on inflation, though they noted this effect would likely take time to materialize.
• Several participants noted that the deceleration in housing services prices was likely to continue to be a source of disinflationary pressure.

Communication

• A majority of participants remarked that they saw advantages in shortening the statement.
• Some participants commented that they welcomed the opportunity to review the Committee's communications tools and practices.
• Most participants emphasized that they preferred not to repeat the language in the previous postmeeting statement that had suggested an easing bias regarding the likely direction of the Committee's future interest rate decisions.

Policy

• Several participants remarked that they did not see the current policy stance as restrictive, while a few other participants commented that they saw the current policy stance as slightly restrictive.
• Most participants remarked on scenarios in which inflationary pressures would dissipate and inflation would soon begin to return to 2 percent. In such scenarios, almost all of these participants noted that it would likely be appropriate to maintain or eventually lower the target range for the federal funds rate.
• Most participants, however, also pointed to scenarios in which, in the context of stable labor market conditions, inflation would remain elevated due to strong AI-related demand, the conflict in the Middle East, or the effects of tariffs.
• In such scenarios, almost all of these participants indicated that some policy firming would likely be warranted to return inflation to 2 percent.
• Regarding participants' individual assessments of appropriate monetary policy under what each participant judged to be the most likely scenario for the economy, many participants indicated that the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year.
• Many other participants, however, assessed that the appropriate level of the federal funds rate would be above the current target range at the end of this year.
• Participants noted that their future policy actions would depend on incoming information.
• Participants generally assessed that information received over the intermeeting period suggested that upside risks to price stability remained elevated while downside risks to achieving maximum employment had moderated a bit.
• A few participants commented that, in light of these developments, there was a case for raising the target range for the federal funds rate, but those participants indicated that they supported maintaining the current target range at this meeting.

FX

• There were no intervention operations in foreign currencies for the System's account during the intermeeting period.