by Calculated Risk on 7/06/2016 02:31:00 PM

From the Fed: Minutes of the Federal Open Market Committee, June 14-15, 2016. Excerpts:

Almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labor market. Even so, many remarked that they were reluctant to change their outlook materially based on one economic data release. Participants generally expected to see a resumption of monthly gains in payroll employment that would be sufficient to promote continued strengthening of the labor market. However, some noted that with labor market conditions at or near those consistent with maximum employment, it would be reasonable to anticipate that gains in payroll employment would soon moderate from the pace seen over the past few years.
...
Global financial conditions had improved since earlier in the year, and recent data on net exports suggested that the drag on domestic economic activity from the external sector had abated somewhat. Still, participants generally agreed that global economic and financial developments should continue to be monitored closely. Some participants indicated that prospects for economic activity in many foreign economies appeared to be subdued, that global inflation and interest rates remained very low by historical standards, and that recurring bouts of global financial market instability remained a risk. Most participants noted that the upcoming British referendum on membership in the European Union could generate financial market turbulence that could adversely affect domestic economic performance. Some also noted that continued uncertainty regarding the outlook for China's foreign exchange policy and the relatively high levels of debt in China and some other EMEs represented appreciable risks to global financial stability and economic performance.

In light of participants' updates to their economic projections, they discussed their current assessments of the appropriate trajectory of monetary policy over the medium term. Most still expected that the appropriate target range for the federal funds rate associated with their projections of further progress toward the Committee's statutory objectives would rise gradually in coming years. However, some noted that their forecasts were now consistent with a shallower path than they had expected at the time of the March meeting. Many participants commented that the level of the federal funds rate consistent with maintaining trend economic growth--the so-called neutral rate--appeared to be lower currently or was likely to be lower in the longer run than they had estimated earlier. While recognizing that the longer-run neutral rate was highly uncertain, many judged that it would likely remain low relative to historical standards, held down by factors such as slow productivity growth and demographic trends. Several noted that in the prevailing circumstances of considerable uncertainty about the neutral federal funds rate, the Committee could better gauge the effects of increases in the federal funds rate on the economy if it proceeded gradually in adjusting policy.
emphasis added