US: FOMC Minutes

Wed May 24 13:00:00 CDT 2017

The FOMC took no action at its meeting early this month but a couple of the members, citing the need to remove accommodation more quickly, were ready to raise the target rate again after raising it at the March meeting. But the majority were patient given unusual and what they hope would prove to be temporary weakness in both inflation and consumer spending.

Today's minutes also offer a proposed structure for tapering using "gradually increasing caps" aimed at unwinding the Fed's $4.5 trillion balance sheet in a predictable manner. These "caps" would limit the amount of Treasury and agency securities that would be allowed each month to run off (not reinvested and moved out of the financial markets). This would fix the pace that the balance sheet is reduced. These caps would be initially set at low levels and then raised every three months making for a gradually increasing pace of stimulus withdrawal.

Commentary from the Fed on the Trump administration's policies has been very limited but there is news in today's minutes as members voiced their concerns that easing regulatory standards could trigger financial instability. Members also repeated that fiscal stimulus could "pose" upside risks to growth.

Expecting economic weakness in March to prove temporary, most members said a rate hike would be coming "soon". And expectations in fact are strong that the FOMC will, at the upcoming meeting in June, raise its target range by a 1/4 point to a 1.0 percent midpoint. Markets are showing little early reaction to the minutes.

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