Highlights
The minutes of the September 19-20 FOMC show that at that time the US economy was still performing better than the FOMC had expected despite a cooling in the labor market, still elevated inflation, and tighter financial conditions.
The staff review of the economic situation summed up conditions at the time of the meeting. The minutes said,"The data available at the time of the September 19-20 meeting suggested that real gross domestic product (GDP) was rising at a solid pace in the third quarter. The labor market continued to be tight, with the unemployment rate low and job gains slowing but remaining strong. Consumer price inflation was still elevated."
FOMC participants' views were that"real GDP had been expanding at a solid pace and had been more resilient than expected. Nevertheless, participants also noted that they expected that real GDP growth would slow in the near term. Participants judged that the current stance of monetary policy was restrictive and that it broadly appeared to be restraining the economy as intended. Participants stressed that current inflation remained unacceptably high while acknowledging that it had moderated somewhat over the past year." However, at the meeting time, participants wanted"further evidence" that inflation"was clearly on a path to the Committee's 2 percent objective".
Participants saw the household sector continued to show"considerable strength" supported by a strong labor market and by generally strong household balance sheets. Nonetheless, risks were perceived on the near horizon. The minutes said,"many participants remarked that the finances of some households were coming under pressure amid high inflation and declining savings and that there had been an increasing reliance on credit to finance expenditures. In addition, tighter credit conditions, waning fiscal support for families, and a resumption of student loan payments were viewed by several participants as having the potential to weigh on the growth of consumption." The housing sector had been"resilient despite higher interest rates."
The labor market was deemed"tight but that supply and demand conditions were continuing to come into better balance." The minutes noted,"that nominal wages were still rising at rates above levels generally assessed to be consistent with the sustained achievement of the Committee's 2 percent inflation objective, given current estimates of trend productivity growth." Price inflation was said to be"slowing", although participants"emphasized that further progress was needed to get inflation sustainably to 2 percent. Participants pointed to the softening of price inflation for goods amid improving supply conditions and to declining housing services inflation." Additionally,"longer-term inflation expectations remained well anchored and that shorter-term inflation expectations had been moving down from elevated levels. Participants observed that, notwithstanding recent favorable developments, inflation remained well above the Committee's 2 percent longer-run objective and that elevated inflation was continuing to harm businesses and households-particularly low-income households. Participants stressed that they would need to see more data indicating that inflation pressures were abating to be more confident that inflation was on course to return to 2 percent over time."
The business sector was noted to have"continued to be solid, though several pointed to signs of softening conditions." While there were"improved business conditions from an increased ability to hire and retain workers, better-functioning supply chains, or reduced input cost pressures," higher costs were difficult to pass through and tighter financial conditions were likely to restrain future activity. The UAW strike was anticipated to temporarily slow growth. There were concerns about"vulnerabilities" in commercial real estate that could stress the banking sector. However,"Several participants noted, however, that the tightening of credit conditions resulting from the banking stresses earlier in the year was likely to be less severe than they previously expected."
The minutes said, there is"a high degree of uncertainty surrounding the economic outlook." Strike activity, energy costs, and tighter credit conditions could weigh on US growth. For the policy outlook,"participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee's 2 percent objective over time. A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks."
The minutes of the September 19-20 FOMC meeting reflect conditions from three weeks ago. The minutes do not reflect fresher information since then. This includes the short-term avoidance of a US government shutdown and the unexpectedly strong 336,000 in nonfarm payrolls in September which signals that the labor market remains robust. Nor does it encompass the tightening in financial market conditions as evidenced by the rising yield in the 10-year US treasuries which are at levels not seen since mid-2007. Most recently the worsening of geopolitical conditions with the Hamas attack on Israel could have an impact on the global economy.
The FOMC remains data dependent going into the next meeting on October 31-November 1. At that time the FOMC will have the advance estimate for third quarter GDP and the PCE deflator through September, as well as the third quarter employment cost index. Policymakers will have more information to judge if tighter financial market conditions are doing some of the work for them in terms of restrictive monetary policy that will allow them to leave rates that their current level and pause in hiking rates for another meeting. It will, however, not change that policymakers remain hawkish on the rate outlook, or that rates are likely to remain at least at current levels for a time.
The staff review of the economic situation summed up conditions at the time of the meeting. The minutes said,"The data available at the time of the September 19-20 meeting suggested that real gross domestic product (GDP) was rising at a solid pace in the third quarter. The labor market continued to be tight, with the unemployment rate low and job gains slowing but remaining strong. Consumer price inflation was still elevated."
FOMC participants' views were that"real GDP had been expanding at a solid pace and had been more resilient than expected. Nevertheless, participants also noted that they expected that real GDP growth would slow in the near term. Participants judged that the current stance of monetary policy was restrictive and that it broadly appeared to be restraining the economy as intended. Participants stressed that current inflation remained unacceptably high while acknowledging that it had moderated somewhat over the past year." However, at the meeting time, participants wanted"further evidence" that inflation"was clearly on a path to the Committee's 2 percent objective".
Participants saw the household sector continued to show"considerable strength" supported by a strong labor market and by generally strong household balance sheets. Nonetheless, risks were perceived on the near horizon. The minutes said,"many participants remarked that the finances of some households were coming under pressure amid high inflation and declining savings and that there had been an increasing reliance on credit to finance expenditures. In addition, tighter credit conditions, waning fiscal support for families, and a resumption of student loan payments were viewed by several participants as having the potential to weigh on the growth of consumption." The housing sector had been"resilient despite higher interest rates."
The labor market was deemed"tight but that supply and demand conditions were continuing to come into better balance." The minutes noted,"that nominal wages were still rising at rates above levels generally assessed to be consistent with the sustained achievement of the Committee's 2 percent inflation objective, given current estimates of trend productivity growth." Price inflation was said to be"slowing", although participants"emphasized that further progress was needed to get inflation sustainably to 2 percent. Participants pointed to the softening of price inflation for goods amid improving supply conditions and to declining housing services inflation." Additionally,"longer-term inflation expectations remained well anchored and that shorter-term inflation expectations had been moving down from elevated levels. Participants observed that, notwithstanding recent favorable developments, inflation remained well above the Committee's 2 percent longer-run objective and that elevated inflation was continuing to harm businesses and households-particularly low-income households. Participants stressed that they would need to see more data indicating that inflation pressures were abating to be more confident that inflation was on course to return to 2 percent over time."
The business sector was noted to have"continued to be solid, though several pointed to signs of softening conditions." While there were"improved business conditions from an increased ability to hire and retain workers, better-functioning supply chains, or reduced input cost pressures," higher costs were difficult to pass through and tighter financial conditions were likely to restrain future activity. The UAW strike was anticipated to temporarily slow growth. There were concerns about"vulnerabilities" in commercial real estate that could stress the banking sector. However,"Several participants noted, however, that the tightening of credit conditions resulting from the banking stresses earlier in the year was likely to be less severe than they previously expected."
The minutes said, there is"a high degree of uncertainty surrounding the economic outlook." Strike activity, energy costs, and tighter credit conditions could weigh on US growth. For the policy outlook,"participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee's 2 percent objective over time. A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks."
The minutes of the September 19-20 FOMC meeting reflect conditions from three weeks ago. The minutes do not reflect fresher information since then. This includes the short-term avoidance of a US government shutdown and the unexpectedly strong 336,000 in nonfarm payrolls in September which signals that the labor market remains robust. Nor does it encompass the tightening in financial market conditions as evidenced by the rising yield in the 10-year US treasuries which are at levels not seen since mid-2007. Most recently the worsening of geopolitical conditions with the Hamas attack on Israel could have an impact on the global economy.
The FOMC remains data dependent going into the next meeting on October 31-November 1. At that time the FOMC will have the advance estimate for third quarter GDP and the PCE deflator through September, as well as the third quarter employment cost index. Policymakers will have more information to judge if tighter financial market conditions are doing some of the work for them in terms of restrictive monetary policy that will allow them to leave rates that their current level and pause in hiking rates for another meeting. It will, however, not change that policymakers remain hawkish on the rate outlook, or that rates are likely to remain at least at current levels for a time.
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.
