US: FOMC Minutes

Wed May 20 13:00:00 CDT 2015

More at the April FOMC did not see a rate hike in the cards at the June FOMC than those who did, one indication from the latest FOMC minutes that the doves are still in charge. Members agreed, as implied in the initial FOMC statement, that a rate hike is now on the table at every meeting.

Data-dependency is the Fed's key theme, that a rate hike will depend on how strong employment growth remains and whether inflation begins to show some pressure. The initial statement didn't mention the dollar, but the strength of the dollar was an important topic at the meeting amid concern that the negative impact of the dollar's appreciation on exports may last for a while.

Weakness in the first quarter was generally dismissed as due to transitory factors which are spelled out in the minutes. Harsh weather is at the top followed by the dock strike and the decline in the oil patch. Also cited was the risk of statistical noise in the economic data where the minutes hint that winter adjustments might not be accurate enough.

The first-quarter anomaly aside, the minutes underscore the positive factors for the economy: favorable consumer spending, low interest rates, and rising household income. Consumer confidence was also listed as a key positive but may now be in question following last week's plunge in the consumer sentiment index.

Inflation was not a hot topic at the meeting though some hawks noted that low energy prices and cheapening imports may be transitory factors and that the latest inflation indications were on the rise. This raises the importance of Friday's consumer price index where readings are expected to tick fractionally downward, not upward.

Members also showed a little clairvoyance, suggesting that volatility in bonds, which true enough has hit the market badly the past several weeks, might begin to appear thanks to high-frequency traders, lower inventories of bonds held by dealers, and elevated assets of bond funds. To help limit the risk of future volatility when the Fed does begin to firm, members are pointing to the importance of transparency and the wording and timing of decisions.

There's very little reaction to the statement, one that confirms that the Fed is sticking with its wait-and-see policy.

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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