US: FOMC Minutes

Wed Apr 08 13:00:00 CDT 2015

The Fed minutes showed some division for when the next rate hike will occur. However, based on data dependency, the first increase could be in June of this year or even later in 2016. Almost all participants were in favor of removing "patient" from guidance.

The Fed clearly is focusing on data dependency. Wage growth is an important issue of data dependency.

Monetary policy is going to get messy sometime over the next 12 months. Important new language-as mentioned in the minutes-includes reverse repos (RRP) and interest on excess reserves (IOER).

"In their discussion regarding strategies for reducing ON RRP usage, should it become undesirably large during the early stages of normalization, most participants viewed raising the IOER rate, thereby widening the spread between the IOER and ON RRP rates, as an appropriate initial step."

The minutes reiterated that policy changes will be very gradual. This is probably the most important point out of the minutes.

"When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

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.

Eight times a year