US: FOMC Minutes

Wed Feb 18 13:00:00 CST 2015

The Fed minutes for the January FOMC minutes indicated that the Fed had increased debate but still remains "patient" for when the first policy rate increase will occur. While some hawks are worried about rates being raised too late, most on the FOMC remain dovish. Foreign issues remain a notable downside risk and inflation is low. Many participants see an early rate increase as damping the recovery.

Even though energy is holding down inflation currently, inflation is seen as eventually returning to goal of 2 percent. But soft wage growth is a notable concern.

The Fed is getting more technical with staff presentations on unwinding operations regarding the Fed balance sheet. There were discussions regarding interest on excess reserves and on reverse repos. These are relatively new policy rates that have only been experimentally used for practice by the Fed for future tightening.

Overall, the tenor of the minutes clearly was dovish. A first rate hike is not likely before June-and increases are likely to be very gradual.

The Federal Open Market Committee issues minutes of its meetings with a lag. The minutes of the previous meeting are reported three weeks after the meeting.

The FOMC has changed dramatically in the transparency of its operations. It now discloses policy changes at the end of each meeting. Historically, the Fed used to keep investors guessing about policy changes and Fed officials did not appear on the speaking circuit as frequently as they do now.

Since the Fed moved up the release of the minutes to three weeks after a meeting from six in January 2005, the minutes have become a market mover as analysts parse each word looking for clues to policy. However, the minutes do include the complete economic analysis compiled by Fed officials and whether or not any FOMC members have voiced opinions at odds with the rest of the group.

Investors who want a more detailed description of Fed opinions will generally read the minutes closely. However, the Fed discloses its official view at the end of each FOMC meeting with a public statement. Fed officials make numerous speeches, which freely give their views to the public at large.

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