US: FOMC Minutes

Wed Oct 11 13:00:00 CDT 2017

Inflation indications have picked up significantly since the September FOMC when some of the 16 participants wanted to see evidence that inflation was picking up and said they would evaluate coming inflation data before supporting another rate hike. Inflation expectations, which have remained very low despite the post-hurricane uptick in gasoline prices, were also cited as a trouble spot.

Yet the hawks at the meeting were confident that inflation would indeed accelerate though there was talk that hitting the Fed's 2 percent inflation goal would take longer than expected. The hawks described the Fed's policy as too loose and a threat to future stability. But the doves said the labor market was not yet at full employment and that the sustainable rate of unemployment was perhaps lower than estimated, though the unemployment rate, since the meeting, has fallen 2 tenths to a 16-year low of 4.2 percent.

The doves also described wage growth as subdued though since this meeting, average hourly earnings posted an outsized monthly 0.5 percent gain in September with July revised higher and now also at 0.5 percent. Core consumer prices for August, released just before September's FOMC, posted their strongest gain in 7 months, rising 0.2 percent and just short of being rounded up to 0.3 percent. Members downplayed Hurricanes Harvey and Irma saying their impact would likely prove temporary and not alter the course of the economy.

Policy makers did not hike the Fed funds rate at the meeting but they did, as outlined at the June FOMC, initiate the reduction of their $4.5 trillion balance sheet by limiting, in what will be a gradually accelerating process, the reinvestment of maturing Treasuries and mortgage-backed securities.

The vote at the meeting was unanimous, 9 to 0, and expectations are strong that the FOMC, not at their coming meeting at month-end but at their December meeting, will in fact raise the funds rate for the 3rd time this year and for the 4th time this expansion. Markets are showing no significant 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