Highlights
The minutes of the June 13-14 FOMC meeting add little to what is already known regarding policymakers' view on the US economy with its still elevated inflation and heated labor market. A review of the discussion suggests that while agreement remains unanimous that inflation remains too high, it is less so about the urgency of further rate hikes in the face of a"resilient" US economy and labor market that is still taut even as the supply and demand imbalances improve.
Going into their deliberations, the FOMC received the results of the primary dealers and market participants surveys which indicated that markets have broadly accepted that the FOMC will not lower rates at least through early 2024, although before the meeting were not looking for further rate hikes.
The minutes noted,"Desk survey respondents still saw a recession occurring in the near term as quite likely, but the expected timing was again pushed later, as economic data pointed to the continued resilience of economic activity. Overall, respondents generally continued to expect that any downturn would be neither deep nor prolonged." The Fed staff also anticipate a downturn and similar recovery. The minutes said,"The economic forecast prepared by the staff for the June FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery."
However, FOMC participants did not mention a recession. They expressed concerns about tightening"weighing" on the economic outlook and heightened risks that between tighter conditions brought about by problems in the banking sector and the impacts of prior rate hikes that may be yet unrealized. One point of interest mentioned in the minutes is that GDP may be overstating the strength of the economy. The minutes said,"In their discussion of economic activity, several participants pointed out that recent GDP readings had been stronger than expected earlier in the year, while gross domestic income (GDI - a measure focused on income and costs) had been weak. Of those who noted the discrepancy between GDP and GDI, most suggested that economic momentum may not be as strong as indicated by the GDP readings."
There was not complete agreement on just how much effect rate hikes have had since the start of the tightening cycle in March 2022. The minutes noted"a high degree of uncertainty regarding the cumulative effects on the economy from both already-enacted monetary policy tightening and the potential additional tightening in credit conditions stemming from recent banking-sector developments."
The minutes continued,"Participants noted that the full effects of monetary tightening had likely yet to be observed, though several highlighted the possibility that much of the effect of past monetary policy tightening may have already been realized." Chair Powell has emphasized that Fed policymakers are data-dependent and on a meeting-to-meeting basis regarding the outlook for rates. This suggests that although the FOMC's median forecast for 2023 includes another 50 basis points of tightening likely in 25 basis point increments this is not a had promise.
Should the incoming economic data reflect sufficient moderation in upward price pressures particularly in nonhousing services the need for further restriction in monetary policy becomes less urgent. Nonetheless, the FOMC is clear that fighting inflation is their present priority along with ensuring that inflation expectations above the 2 percent flexible average inflation target do not become entrenched.
Going into their deliberations, the FOMC received the results of the primary dealers and market participants surveys which indicated that markets have broadly accepted that the FOMC will not lower rates at least through early 2024, although before the meeting were not looking for further rate hikes.
The minutes noted,"Desk survey respondents still saw a recession occurring in the near term as quite likely, but the expected timing was again pushed later, as economic data pointed to the continued resilience of economic activity. Overall, respondents generally continued to expect that any downturn would be neither deep nor prolonged." The Fed staff also anticipate a downturn and similar recovery. The minutes said,"The economic forecast prepared by the staff for the June FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery."
However, FOMC participants did not mention a recession. They expressed concerns about tightening"weighing" on the economic outlook and heightened risks that between tighter conditions brought about by problems in the banking sector and the impacts of prior rate hikes that may be yet unrealized. One point of interest mentioned in the minutes is that GDP may be overstating the strength of the economy. The minutes said,"In their discussion of economic activity, several participants pointed out that recent GDP readings had been stronger than expected earlier in the year, while gross domestic income (GDI - a measure focused on income and costs) had been weak. Of those who noted the discrepancy between GDP and GDI, most suggested that economic momentum may not be as strong as indicated by the GDP readings."
There was not complete agreement on just how much effect rate hikes have had since the start of the tightening cycle in March 2022. The minutes noted"a high degree of uncertainty regarding the cumulative effects on the economy from both already-enacted monetary policy tightening and the potential additional tightening in credit conditions stemming from recent banking-sector developments."
The minutes continued,"Participants noted that the full effects of monetary tightening had likely yet to be observed, though several highlighted the possibility that much of the effect of past monetary policy tightening may have already been realized." Chair Powell has emphasized that Fed policymakers are data-dependent and on a meeting-to-meeting basis regarding the outlook for rates. This suggests that although the FOMC's median forecast for 2023 includes another 50 basis points of tightening likely in 25 basis point increments this is not a had promise.
Should the incoming economic data reflect sufficient moderation in upward price pressures particularly in nonhousing services the need for further restriction in monetary policy becomes less urgent. Nonetheless, the FOMC is clear that fighting inflation is their present priority along with ensuring that inflation expectations above the 2 percent flexible average inflation target do not become entrenched.
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.
