Federal Reserve decision-makers signaled Thursday that downside risks to U.S. economic growth had diminished in June compared with May, suggesting a housing market downturn would not prompt near-term interest rate cuts.
According to minutes of the June 27-28 Federal Open Market Committee released on Thursday, Fed officials said housing was likely to remain a drag on the economy for some time, but voiced concern there was not yet "convincing evidence" that a recent moderation in core inflation data could be sustained.
"Participants agreed that the risk that inflation would fail to moderate as expected remained their predominant concern," the minutes said.
The FOMC members said economic activity was still expanding at a moderate pace and they interpreted the most recent information on business spending, business sentiment and the labor market "as suggesting that the risks to growth were more balanced than at the time of the May meeting, despite the ongoing adjustment in the housing sector and the significant recent increases in longer-term interest rates."
In May, the FOMC members had said that downside risks had "diminished slightly. On both May 9 and June 28, the Fed voted unanimously to maintain its key federal funds rate at 5.25 percent.
"Spillovers from the strains in the housing market to consumptions spending had apparently been quite limited to date," the Fed said in the June meeting minutes.
But the officials noted that labor market conditions remained rather tight, particularly for the most skilled workers. They said a number of forces could sustain inflation pressures, including the generally high level of resource utilization, elevated energy and commodity prices, a decline in the foreign exchange value of the dollar and slower productivity growth.
"Although the housing market remained a key source of uncertainty about the outlook, members thought it most likely that the overall economy would expand at a moderate pace over coming quarters," the Fed said in the minutes.
"Members generally anticipated that core inflation would remain relatively subdued but concurred that a sustained moderation in in inflation had not yet ben convincingly demonstrated."