A tightening labor market and a "pick up" in household spending headlined last month's FOMC meeting that produced an incremental 25-basis-point rate hike and a rise in quarterly forecasts to show not one but two more incremental hikes this year. To emphasize the hawkish tone, the statement removed wording that the funds rate would remain low for some time.
The meeting also upgraded the consumer who, however, didn't prove that strong at all as consumer spending managed only a very modest gain in June. Business investment was said to be rising and residential investment slowing.
Inflation forecasts at the meeting, like the outlook for rate hikes, were also nudged higher. But members were confident that the inflation trajectory would be sustained at the Fed's 2 percent goal. Some members noted at the meeting that labor shortages, at least in some cases, were being met by salary increases. And some members also saw the unemployment rate remaining low and in turn wages rising.
Several members also mentioned the yield curve as a risk as short-term rates have been catching up with long-term rates in a trend that often coincides with recession. And members seemed to be opening up on questions of trade and fiscal policy. On trade policy most noted that it could have negative effects while on fiscal policy, a few saw it as an upside risk for the economy and also warned that it was not on a sustainable path.
The greater dialogue on trade and fiscal policy is a breath of fresh air following a run of FOMC statements and chair press conferences that have avoided the topics. And the comments on wage increases are also notable, underscoring the Fed's commitment to raise rates and head off inflation risk.