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Fed: Most see more fiscal aid needed for recovery

Yahoo Finance’s Brian Cheung and Kristin Myers discuss the latest remarks from the Federal Reserve.

Video Transcript

KRISTIN MYERS: Let's check in first with Yahoo Finance's Brian Cheung. He has the latest headlines from those FOMC minutes. Hey, Brian.

BRIAN CHEUNG: Hey, Kristin. Well, as you mentioned, the Federal Reserve releasing the minutes from its September 16 meeting, where the Fed held rates steady, but also then provided, for the first time, forward guidance, saying that the Federal Reserve would not be raising interest rates until, effectively, it reaches maximum employment, and inflation is moderately overshooting its 2% target.

So a number of nuggets from the minutes that were just released. First off, on the economic outlook, the FOMC did appear to see that the recovery was going, quote, "faster than expected." They pointed specifically to the July and August jobs reports as saying that those gains in the labor market were larger than anticipated.

There's also a note, though, that uncertainty surrounding the economic outlook is still very elevated. And one big headwind to those economic, I guess, futures would really be the fiscal stimulus, as we've been discussing at length over the past few days.

At the time-- again, this was in the middle of September-- participants had actually factored into their economic outlooks through the summary of economic projections the expectation for additional fiscal support, a number of them noting in the meeting that, quote, "if future fiscal support was significantly smaller or arrived significantly later than they expected, that the pace of the recovery could be slower than anticipated," end quote. This does hint that this is the reality now, effectively, if the president has indeed walked away from further stimulus talks with the House Democrats.

Now, a number of other things worth mentioning. Keep in mind that the Federal Reserve did have two members dissent against the forward guidance that it provided in that meeting. From the Minneapolis Fed, Neel Kashkari, in addition to the Dallas Fed president, Robert Kaplan.

They were on opposite sides of the dissent, the Minneapolis Fed president preferring something that would actually have a longer-term commitment, something that could be even a year past maximum employment or inflation about 2% to keep rates low, or Robert Kaplan, on the other side of, things arguing-- he actually would've preferred forward guidance a little bit more vague and similar to what the Fed had said in previous meetings.

And what we know is that those in that Kaplan camp, those who would prefer maybe a little bit more hawkish and more conservative language-- what they note as several participants, so it was more than just the Dallas Fed president, whereas on the Minneapolis side of things, there was one other FOMC participant that appeared to agree with him because the minutes, say that it was a couple of participants.

So very, very nitty-gritty detail there. But broadly speaking, the Fed does still say that, quote, "circumstances could arise in which the committee judged that it would be appropriate to change its guidance." That could certainly be the case, for example, on asset purchases through its quantitative easing program. So it does seem like the Fed is giving itself a little bit of an out if it needed to change that forward guidance.

But again, the big summary from the FOMC minutes as of September-- [INAUDIBLE] the economic recovery was underway, that there were still threats, especially if there's no fiscal action.

KRISTIN MYERS: All right. Thanks so much, Brian, for that update, kind of echoing some of the comments that we heard from Fed chair Jay Powell just yesterday.