Highlights
The minutes of the January 31-February 1 FOMC meeting reflect conditions prior to the release of the January employment data, retail sales numbers, and CPI and PPI reports. Nonetheless, the tone of FOMC participants deliberations matches up with the more current data. The FOMC remained hawkish on the inflation outlook, aware of"modest growth in spending and production," and"robust" job gains.
The manager pro tem for open market operations reported that markets anticipated moderate growth in 2023 and moderating inflation risks. The minutes noted the markets anticipated the 25 basis point rate hike that did occur, but were at odds with FOMC participants' views."A significant share of survey respondents anticipated that the Committee would hold the policy rate stable for much of 2023," the minutes said.
In contrast to markets' expectation, FOMC"Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path."
The minutes continued,"Participants agreed that they had observed less evidence of a slowdown in the rate of increase of prices for core services excluding housing, a category that accounts for more than half of the core PCE price index. Participants judged that as long as the labor market remained very tight, wage growth in excess of 2 percent inflation and trend productivity growth would likely continue to put upward pressure on some prices in this component." With inflation expectations for businesses and consumers"well anchored" for the medium term and the labor market still"very tight", the FOMC could continue to increase rates to fight inflation.
"Participants noted that it was important that overall financial conditions be consistent with the degree of policy restraint that the Committee is putting into place in order to bring inflation back to the 2 percent goal."
Policymakers,"observed that the uncertainty associated with their outlooks for economic activity, the labor market, and inflation was high. Regarding upside risks to inflation, participants cited a variety of factors, including the possibility that price pressures could prove to be more persistent than anticipated due to, for example, the labor market staying tight for longer than anticipated.
Participants also saw a number of upside risks surrounding the outlook for inflation stemming from factors abroad, such as China's relaxation of its zero-COVID policies and Russia's continuing war against Ukraine," the minutes said.
The minutes also noted that,"A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy."
The"significant progress over the past year in moving toward a sufficiently restrictive stance of monetary," and the consequent"cumulative effect""had begun to moderate inflationary pressures." However,"inflation remained well above the Committee's longer-run goals of 2 percent and the labor market remained very tight, contributing to continuing upward pressures on wages and prices."
While the vote was unanimous among the 12 FOMC voters in favor of a 25 basis point increase at the meeting, not everyone at the meeting wanted it. The minutes said,"almost all participants agreed", so one or two of the nonvoters preferred a different outcome."A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount." This indicates that a minority in the deliberations leaned more toward continued aggressive rate hikes to tame inflation than previously thought. It also sets the stage for further rate hikes at the March 21-22 FOMC meeting should the economic data continue to come in above expectations.
The manager pro tem for open market operations reported that markets anticipated moderate growth in 2023 and moderating inflation risks. The minutes noted the markets anticipated the 25 basis point rate hike that did occur, but were at odds with FOMC participants' views."A significant share of survey respondents anticipated that the Committee would hold the policy rate stable for much of 2023," the minutes said.
In contrast to markets' expectation, FOMC"Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path."
The minutes continued,"Participants agreed that they had observed less evidence of a slowdown in the rate of increase of prices for core services excluding housing, a category that accounts for more than half of the core PCE price index. Participants judged that as long as the labor market remained very tight, wage growth in excess of 2 percent inflation and trend productivity growth would likely continue to put upward pressure on some prices in this component." With inflation expectations for businesses and consumers"well anchored" for the medium term and the labor market still"very tight", the FOMC could continue to increase rates to fight inflation.
"Participants noted that it was important that overall financial conditions be consistent with the degree of policy restraint that the Committee is putting into place in order to bring inflation back to the 2 percent goal."
Policymakers,"observed that the uncertainty associated with their outlooks for economic activity, the labor market, and inflation was high. Regarding upside risks to inflation, participants cited a variety of factors, including the possibility that price pressures could prove to be more persistent than anticipated due to, for example, the labor market staying tight for longer than anticipated.
Participants also saw a number of upside risks surrounding the outlook for inflation stemming from factors abroad, such as China's relaxation of its zero-COVID policies and Russia's continuing war against Ukraine," the minutes said.
The minutes also noted that,"A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy."
The"significant progress over the past year in moving toward a sufficiently restrictive stance of monetary," and the consequent"cumulative effect""had begun to moderate inflationary pressures." However,"inflation remained well above the Committee's longer-run goals of 2 percent and the labor market remained very tight, contributing to continuing upward pressures on wages and prices."
While the vote was unanimous among the 12 FOMC voters in favor of a 25 basis point increase at the meeting, not everyone at the meeting wanted it. The minutes said,"almost all participants agreed", so one or two of the nonvoters preferred a different outcome."A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount." This indicates that a minority in the deliberations leaned more toward continued aggressive rate hikes to tame inflation than previously thought. It also sets the stage for further rate hikes at the March 21-22 FOMC meeting should the economic data continue to come in above expectations.
Definition
Detailing the issues of debate and consensus among policymakers, the Federal Open Market Committee issues minutes of its latest meeting three weeks after the meeting.
Description
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.
The Fed's minutes are a market mover as investors and analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus.
Investors who want a more detailed description of Fed opinions will generally read the minutes closely. Fed officials also make numerous speeches, which give their views to the public at large.
The Fed's minutes are a market mover as investors and analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus.
Investors who want a more detailed description of Fed opinions will generally read the minutes closely. Fed officials also make numerous speeches, which give their views to the public at large.
