Highlights
The minutes of the March 19-20 FOMC meeting reflect conditions three weeks ago, before March's strong employment report and data lack of improvement in consumer prices. These two pieces of economic data will impact financial conditions and expectations for the timing of a possible cut in the fed funds target rate. Fed policymakers are likely to remain hawkish on inflation and cautious about removing restrictions from monetary policy.
The minutes note that three weeks ago,"An estimate of the expected federal funds rate path derived from futures prices shifted up significantly over the intermeeting period. The modal federal funds rate path implied by options prices had also risen, but by substantially less than the futures-implied path. The move up in the futures-implied path reflected in part some shift in expectations toward policy rate cuts beginning later in the year, and cumulating to a smaller rate reduction in 2024, than previously assessed." Since then, the data points to a still tight labor market while continuing its rebalancing of labor supply and demand, and inflation measures indicating a more attenuated path back to the 2 percent objective. The combination puts the possibility of a rate cut further into the second half of 2024 and possibly fewer than the three 25-basis point cuts implied by the March update to the summary of economic projections.
Markets are also expecting,"The Committee's slowing of balance sheet runoff would begin slightly later than previously expected, with the majority of survey participants now expecting the slowing to start around midyear." No decision about the program to reduce the Fed's holdings of US treasuries and agency mortgage-backed securities was announced at the March FOMC meeting. At the post-meeting press conference, Chair Jerome Powell said the FOMC would make a decision"soon". This allows them to set the stage with an announcement as early as the April 30-May 1 FOMC meeting to allow markets to prepare for a start as early as June which would allow for the desired"smooth transition" after the change. The minutes echoed Powell's description of the supply of reserves as"abundant". Powell indicated that the FOMC wants to bring reserves down to a level that can be described as"ample" and which would be more consistent with normal conditions for markets and the economy.
The minutes said the FOMC participants are thinking in terms of about half the current monthly caps of $60.0 billion for US treasuries and $35.0 billion for agency MBS. Most of the adjustment is likely to affect US treasuries. The minutes said,"With redemptions of agency debt and agency mortgage-backed securities (MBS) expected to continue to run well below the current monthly cap, participants saw little need to adjust this cap, which also would be consistent with the Committee's intention to hold primarily Treasury securities in the longer run. Accordingly, participants generally preferred to maintain the existing cap on agency MBS and adjust the redemption cap on U.S. Treasury securities to slow the pace of balance sheet runoff." It was declared that any change in balance sheet policy should not be interpreted as a monetary policy decision.
The discussion of monetary policy and rate setting points to little difference between the assessments of the January 30-31 meeting and the March 19-20 deliberations. Participants continued to see"significant progress" on the inflation front over the past year"even though the two most recent monthly readings on core and headline inflation had been firmer than expected." The minutes said,"Participants generally commented that they remained highly attentive to inflation risks but that they had also anticipated that there would be some unevenness in monthly inflation readings as inflation returned to target."
If overall inflation expectations remain"well-anchored" the persistence of inflation in non-housing services and housing remains a concern. The minutes said,"A few participants remarked that they expected core non-housing services inflation to decline as the labor market continued to move into better balance and wage growth moderated further. Participants discussed the still-elevated rate of housing services inflation and commented on the uncertainty regarding when and by how much lower readings for rent growth on new leases would pass through to this category of inflation." Policymakers remain cautious and watchful.
While risks are"moving into better balance" a great deal of uncertainty clouds the economic outlook. The minutes said,"Participants agreed, however, that monetary policy remained well positioned to respond to evolving economic conditions and risks to the outlook, including the possibility of maintaining the current restrictive policy stance for longer should the disinflation process slow, or reducing policy restraint in the event of an unexpected weakening in labor market conditions."
The minutes note that three weeks ago,"An estimate of the expected federal funds rate path derived from futures prices shifted up significantly over the intermeeting period. The modal federal funds rate path implied by options prices had also risen, but by substantially less than the futures-implied path. The move up in the futures-implied path reflected in part some shift in expectations toward policy rate cuts beginning later in the year, and cumulating to a smaller rate reduction in 2024, than previously assessed." Since then, the data points to a still tight labor market while continuing its rebalancing of labor supply and demand, and inflation measures indicating a more attenuated path back to the 2 percent objective. The combination puts the possibility of a rate cut further into the second half of 2024 and possibly fewer than the three 25-basis point cuts implied by the March update to the summary of economic projections.
Markets are also expecting,"The Committee's slowing of balance sheet runoff would begin slightly later than previously expected, with the majority of survey participants now expecting the slowing to start around midyear." No decision about the program to reduce the Fed's holdings of US treasuries and agency mortgage-backed securities was announced at the March FOMC meeting. At the post-meeting press conference, Chair Jerome Powell said the FOMC would make a decision"soon". This allows them to set the stage with an announcement as early as the April 30-May 1 FOMC meeting to allow markets to prepare for a start as early as June which would allow for the desired"smooth transition" after the change. The minutes echoed Powell's description of the supply of reserves as"abundant". Powell indicated that the FOMC wants to bring reserves down to a level that can be described as"ample" and which would be more consistent with normal conditions for markets and the economy.
The minutes said the FOMC participants are thinking in terms of about half the current monthly caps of $60.0 billion for US treasuries and $35.0 billion for agency MBS. Most of the adjustment is likely to affect US treasuries. The minutes said,"With redemptions of agency debt and agency mortgage-backed securities (MBS) expected to continue to run well below the current monthly cap, participants saw little need to adjust this cap, which also would be consistent with the Committee's intention to hold primarily Treasury securities in the longer run. Accordingly, participants generally preferred to maintain the existing cap on agency MBS and adjust the redemption cap on U.S. Treasury securities to slow the pace of balance sheet runoff." It was declared that any change in balance sheet policy should not be interpreted as a monetary policy decision.
The discussion of monetary policy and rate setting points to little difference between the assessments of the January 30-31 meeting and the March 19-20 deliberations. Participants continued to see"significant progress" on the inflation front over the past year"even though the two most recent monthly readings on core and headline inflation had been firmer than expected." The minutes said,"Participants generally commented that they remained highly attentive to inflation risks but that they had also anticipated that there would be some unevenness in monthly inflation readings as inflation returned to target."
If overall inflation expectations remain"well-anchored" the persistence of inflation in non-housing services and housing remains a concern. The minutes said,"A few participants remarked that they expected core non-housing services inflation to decline as the labor market continued to move into better balance and wage growth moderated further. Participants discussed the still-elevated rate of housing services inflation and commented on the uncertainty regarding when and by how much lower readings for rent growth on new leases would pass through to this category of inflation." Policymakers remain cautious and watchful.
While risks are"moving into better balance" a great deal of uncertainty clouds the economic outlook. The minutes said,"Participants agreed, however, that monetary policy remained well positioned to respond to evolving economic conditions and risks to the outlook, including the possibility of maintaining the current restrictive policy stance for longer should the disinflation process slow, or reducing policy restraint in the event of an unexpected weakening in labor market conditions."
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.
