US: FOMC Minutes

Wed Jan 03 13:00:00 CST 2018

Views on rate policy weren't unanimous at December's FOMC meeting though the strong voting majority, at 7 to 2, did call for the 25 basis point hike. Those not supporting the vote were concerned that the hike could slow economic growth and impede progress on the Fed's 2 percent inflation goal. The labor market was seen as strengthening further with the hawks, that is those most concerned about inflation, saying low levels of unemployment would likely begin to lift wages.

The flattening of the yield curve was a key topic at the December FOMC with members generally agreeing that the move, that is a rise in short-term yields at the same time that long-term yields held steady, was "not unusual". Factors cited for the rise in short-term yields included the Fed's rate hikes and also the downdraft in inflation expectations and there was concern noted that an inversion of the curve could signal a recession.

The tax bill, which was being finalized during December, was also discussed at last the month's FOMC meeting. Members said tax cuts would likely give a lift to both consumer spending and business investment and quarterly FOMC forecasts were in fact nudged higher for GDP and lower for the unemployment rate. Other topics included hurricanes, where related disruptions did not alter the outlook for the economy, and also alternative frameworks for monetary policy.

The Fed has penciled in three more rate hikes this year in what would extend its gradual removal of stimulus. Most expected inflation to move higher and stabilize around 2 percent and repeated that near-term risks to the economy and monetary policy were balanced. Treasury yields are showing no significant reaction to the release of 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