Highlights
The minutes of the December 12-13 FOMC meeting reflect conditions three weeks ago. Available data and information in the intervening period do not significantly change the tone of economic conditions that prevailed then. Going into the meeting, it was widely anticipated that Fed policymakers would hold rates steady, which they did. What the meeting minutes highlight is that the FOMC maintained a hawkish stance in regard to monetary policy despite positive developments on the inflation front, an economy that is growing modestly, and a labor market that is correcting its supply/demand imbalance while remaining healthy.
The minutes said,"The easing in financial conditions reversed some of the tightening that occurred over the summer and much of the fall." Easier financial conditions were in part due to declines in nominal Treasury securities yields,"more so at longer maturities","as investors appeared to interpret incoming data as reducing risks of prolonged inflation pressures. By extension, that raised hopes of no more rate hikes in this cycle and/or lower rates sooner than previously thought. The modal expectation for a rate cut as forecast by the New York Fed's open market desk is around June 2024."
FOMC participants broadly forecast slower growth in 2024 after 2023 turned in a stronger than expected performance. The minutes said,"Regarding the economic outlook, participants generally judged that, in 2024, real GDP growth would cool and that rebalancing of the labor market would continue, with the unemployment rate rising somewhat from its current level." The forecasts also incorporated a downward revision to inflation estimates with the current inflation data showing more progress toward the Fed's 2 percent objective than previously thought.
However, FOMC participants"remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices." The FOMC continues to note that"core services prices still increasing at an elevated pace" relative to the objective even as all-items and core inflation are showing more progress. Costs for shelter are one cause of the higher readings for core services."Several participants observed that the ongoing rebalancing of labor supply and demand would help reduce core services inflation. Several participants assessed that housing services inflation would fall further over time as the earlier deceleration in rents on new leases continued to pass through to broader rent measures," the minutes noted.
The labor market was still deemed"tight" by FOMC participants, but some noted that wage growth was slower along with weaker payroll growth."Some participants remarked that their contacts reported larger applicant pools for vacancies, and some participants highlighted that the ratio of vacancies to unemployed workers had declined to a value only modestly above its level just before the pandemic. Participants viewed improvements in labor supply and the easing of labor demand as both having contributed to the labor market coming into better balance," the minutes said.
The minutes said,"Participants generally perceived a high degree of uncertainty surrounding the economic outlook. As an upside risk to both inflation and economic activity, participants noted that the momentum of economic activity may be stronger than currently assessed, possibly on account of the continued balance sheet strength of many households. Furthermore, participants observed that, after a sharp tightening since the summer, financial conditions had eased over the intermeeting period." Easier financial conditions could make the work in bringing down inflation more difficult. Although commodities prices and healing supply chains had alleviated upward price pressures, there is upside risk that these will heat up again.
The FOMC sees downside risks to the outlook from misjudging the impact of past rate hikes in which"the effects of past policy tightening may be larger than expected," along with,"the risk of a marked weakening of household balance sheets, possible negative spillovers from lower growth in some foreign economies, geopolitical risks, and lingering risks of further tightening in bank credit."
The minutes included a strong statement that the FOMC is"resolute in their commitment to bring inflation down to the Committee's 2 percent objective". The assessment of the policy outlook was one of determination to bring inflation down"over the next few years". This did not suggest plans for a rate reduction in the near term, or that when rate reductions began these would be swift and/or steep. FOMC participants"stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions" and the need to mange risks to maintain the dual mandate.
The minutes said,"The easing in financial conditions reversed some of the tightening that occurred over the summer and much of the fall." Easier financial conditions were in part due to declines in nominal Treasury securities yields,"more so at longer maturities","as investors appeared to interpret incoming data as reducing risks of prolonged inflation pressures. By extension, that raised hopes of no more rate hikes in this cycle and/or lower rates sooner than previously thought. The modal expectation for a rate cut as forecast by the New York Fed's open market desk is around June 2024."
FOMC participants broadly forecast slower growth in 2024 after 2023 turned in a stronger than expected performance. The minutes said,"Regarding the economic outlook, participants generally judged that, in 2024, real GDP growth would cool and that rebalancing of the labor market would continue, with the unemployment rate rising somewhat from its current level." The forecasts also incorporated a downward revision to inflation estimates with the current inflation data showing more progress toward the Fed's 2 percent objective than previously thought.
However, FOMC participants"remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices." The FOMC continues to note that"core services prices still increasing at an elevated pace" relative to the objective even as all-items and core inflation are showing more progress. Costs for shelter are one cause of the higher readings for core services."Several participants observed that the ongoing rebalancing of labor supply and demand would help reduce core services inflation. Several participants assessed that housing services inflation would fall further over time as the earlier deceleration in rents on new leases continued to pass through to broader rent measures," the minutes noted.
The labor market was still deemed"tight" by FOMC participants, but some noted that wage growth was slower along with weaker payroll growth."Some participants remarked that their contacts reported larger applicant pools for vacancies, and some participants highlighted that the ratio of vacancies to unemployed workers had declined to a value only modestly above its level just before the pandemic. Participants viewed improvements in labor supply and the easing of labor demand as both having contributed to the labor market coming into better balance," the minutes said.
The minutes said,"Participants generally perceived a high degree of uncertainty surrounding the economic outlook. As an upside risk to both inflation and economic activity, participants noted that the momentum of economic activity may be stronger than currently assessed, possibly on account of the continued balance sheet strength of many households. Furthermore, participants observed that, after a sharp tightening since the summer, financial conditions had eased over the intermeeting period." Easier financial conditions could make the work in bringing down inflation more difficult. Although commodities prices and healing supply chains had alleviated upward price pressures, there is upside risk that these will heat up again.
The FOMC sees downside risks to the outlook from misjudging the impact of past rate hikes in which"the effects of past policy tightening may be larger than expected," along with,"the risk of a marked weakening of household balance sheets, possible negative spillovers from lower growth in some foreign economies, geopolitical risks, and lingering risks of further tightening in bank credit."
The minutes included a strong statement that the FOMC is"resolute in their commitment to bring inflation down to the Committee's 2 percent objective". The assessment of the policy outlook was one of determination to bring inflation down"over the next few years". This did not suggest plans for a rate reduction in the near term, or that when rate reductions began these would be swift and/or steep. FOMC participants"stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions" and the need to mange risks to maintain the dual mandate.
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.
