Highlights
The minutes of the October 31-November 1 FOMC meeting are for at a time when financial conditions were tightening"driven by higher yields on Treasury securities as well as by lower equity prices and a stronger dollar, which themselves partly reflected higher interest rates," the minutes said. It is also when markets"expected that the federal funds rate was at or near its peak and would be held there at least until the June 2024 FOMC meeting."
At the meeting time three weeks ago, FOMC participants were looking at a US economy expanding faster than expected, although with imbalances in the labor market improving and"continued normalization of aggregate supply conditions."
The FOMC viewed the effect of monetary policy as bringing the economy more into line with its forecasts. The minutes noted,"Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation." FOMC participants were not yet satisfied with the moderation in inflation and"stressed that current inflation remained unacceptably high and well above the Committee's longer-run goals of 2 percent. They also stressed that further evidence would be required for them to be confident that inflation was clearly on a path to the Committee's 2 percent objective." The outlook for monetary remained restrictive as"Participants continued to view a period of below-potential growth in real GDP and some further softening in labor market conditions as likely to be needed to reduce inflation pressures".
At the time of the meeting, the labor market is still described as"tight". Some easing in labor supply and demand was"consistent with the gradual rebalancing of labor market conditions."
The minutes said,"Participants noted that in recent months, financial conditions had tightened significantly because of a substantial run-up in longer-term Treasury yields, among other factors." They noted,"persistent changes in financial conditions could have implications for the path of monetary policy and that it would therefore be important to continue to monitor market developments closely."
FOMC participants saw"a high degree of uncertainty surrounding the economic outlook." Risks to the upside included"resilience in spending could persist longer than expected". Risks to the downside were that the effects of cumulative policy tightening"and tighter financial conditions could be larger than expected". The minutes mentioned the possible government shutdown as another risk. Although that shutdown was averted, another looms in the near future. There were also geopolitical risks mentioned with"A potential for a broadening of the armed conflict in the Middle East" causing upside risk to inflation"through it potential effect on oil prices as well as downside risk to economic activity".
The FOMC remains vigilant on the topic of financial stability. The minutes said,"many participants commented that unrealized losses on assets resulting from the rise in longer-term interest rates, significant reliance by some banks on uninsured deposits, and increased funding costs at banks warranted monitoring. Many participants also commented on risks associated with a potential sharp decline in CRE valuations, which could adversely affect some banks and other financial institutions."
The minutes reinforce comments made since the meeting that Fed policymakers are data-dependent and vigilant on returning inflation to the 2 percent objective but will to"proceeded carefully" in assessing incoming information and risks. The minutes said,"Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply."
The balance of risks was deemed"more two sided" with the risks of raising rates and/or keeping rates higher for longer more weighing more equally with easing restrictive policy too soon.
At the meeting time three weeks ago, FOMC participants were looking at a US economy expanding faster than expected, although with imbalances in the labor market improving and"continued normalization of aggregate supply conditions."
The FOMC viewed the effect of monetary policy as bringing the economy more into line with its forecasts. The minutes noted,"Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation." FOMC participants were not yet satisfied with the moderation in inflation and"stressed that current inflation remained unacceptably high and well above the Committee's longer-run goals of 2 percent. They also stressed that further evidence would be required for them to be confident that inflation was clearly on a path to the Committee's 2 percent objective." The outlook for monetary remained restrictive as"Participants continued to view a period of below-potential growth in real GDP and some further softening in labor market conditions as likely to be needed to reduce inflation pressures".
At the time of the meeting, the labor market is still described as"tight". Some easing in labor supply and demand was"consistent with the gradual rebalancing of labor market conditions."
The minutes said,"Participants noted that in recent months, financial conditions had tightened significantly because of a substantial run-up in longer-term Treasury yields, among other factors." They noted,"persistent changes in financial conditions could have implications for the path of monetary policy and that it would therefore be important to continue to monitor market developments closely."
FOMC participants saw"a high degree of uncertainty surrounding the economic outlook." Risks to the upside included"resilience in spending could persist longer than expected". Risks to the downside were that the effects of cumulative policy tightening"and tighter financial conditions could be larger than expected". The minutes mentioned the possible government shutdown as another risk. Although that shutdown was averted, another looms in the near future. There were also geopolitical risks mentioned with"A potential for a broadening of the armed conflict in the Middle East" causing upside risk to inflation"through it potential effect on oil prices as well as downside risk to economic activity".
The FOMC remains vigilant on the topic of financial stability. The minutes said,"many participants commented that unrealized losses on assets resulting from the rise in longer-term interest rates, significant reliance by some banks on uninsured deposits, and increased funding costs at banks warranted monitoring. Many participants also commented on risks associated with a potential sharp decline in CRE valuations, which could adversely affect some banks and other financial institutions."
The minutes reinforce comments made since the meeting that Fed policymakers are data-dependent and vigilant on returning inflation to the 2 percent objective but will to"proceeded carefully" in assessing incoming information and risks. The minutes said,"Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply."
The balance of risks was deemed"more two sided" with the risks of raising rates and/or keeping rates higher for longer more weighing more equally with easing restrictive policy too soon.
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.
