Highlights
The minutes of the December 17-18 FOMC meeting reflect conditions from three weeks ago. FOMC participants were in the process of digesting developments in the post-election period since the November 6-7 meeting and a series of economic data reports that pointed to a little further cooling in the labor market and inflation that remained"somewhat elevated".
FOMC participants noted that"the overall pace of disinflation had slowed over 2024 and that some recent month price readings had been higher than anticipated. Nevertheless, most remarked that disinflationary progress continued to be apparent across a broad range of core goods and services prices. Notably, some participants observed that in the core goods and market-based core services categories, excluding housing, prices were increasing at rates close to those seen during earlier periods of price stability." Improvements in inflation continued, but unevenly. Inflation expectations were"well-anchored" in the longer-term.
Inflation readings did not derail a 25 basis point easing in the fed funds target rate at the December 17-18 meeting, but these did affect the FOMC's collective forecast. The outlook for rate cuts in 2025 was reduced to probably two cuts of 25 basis points and likely those cuts would be later than originally thought.
The minutes said,"With regard to the outlook for inflation, participants expected that inflation would continue to move toward 2 percent, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated. Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could. A couple of participants judged that positive sentiment in financial markets and momentum in economic activity could continue to put upward pressure on inflation. All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting foreign trade and immigration was elevated."
However,"solid" increases in GDP"was unlikely to be a source of upward inflation pressures". Neither were pressures seen from a labor market that had seen a resolution of supply and demand imbalances. The minutes said,"Some participants noted that the labor market could soften further, as the recent pace of payroll growth had been below the rate that would likely keep the unemployment rate constant, given a stable labor force participation rate."
Economic activity was anticipated to continue"to expand at a solid pace" supported by consumer spending at a time of a"solid labor market, rising real wages, and elevated household net worth". However,"Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending."
In the business sector, the minutes said,"several participants noted that favorable aggregate supply developments-including increases in labor supply, business investment, and productivity-continued to support a solid expansion of business activity. A majority of participants remarked that the behavior of equity markets reflected positive sentiment on the part of investors. Many participants also remarked that District contacts generally reported greater optimism about the economic outlook, stemming in part from an expectation of an easing in government regulations and changes in tax policies." However, uncertainty about"potential changes" in taxes and policies was present.
"The vast majority of participants viewed it as appropriate to lower the target range for the federal funds rate by 25 basis points to 4¼ to 4 1/2 percent," the minutes said. This suggests that Cleveland Fed President Beth Hammack's dissent in the vote was an outlier. However, it was probably not without support. The minutes said,"A majority of participants noted that their judgments about this meeting's appropriate policy action had been finely balanced. Some participants stated that there was merit in keeping the target range for the federal funds rate unchanged. These participants suggested that the risk of persistently elevated inflation had increased in recent months, and several of these participants stressed the need for monetary policy to help foster financial conditions that would be consistent with inflation returning sustainably to 2 percent."
The minutes said,"In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing. They also indicated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would be appropriate to continue to move gradually toward a more neutral stance of policy over time."
Risks to the outlook for monetary policy were deemed"roughly balanced" in achieving the dual mandate, but also that decisions were made with a"high degree of uncertainty" that warranted a more cautious approach to rate cuts.
FOMC participants noted that"the overall pace of disinflation had slowed over 2024 and that some recent month price readings had been higher than anticipated. Nevertheless, most remarked that disinflationary progress continued to be apparent across a broad range of core goods and services prices. Notably, some participants observed that in the core goods and market-based core services categories, excluding housing, prices were increasing at rates close to those seen during earlier periods of price stability." Improvements in inflation continued, but unevenly. Inflation expectations were"well-anchored" in the longer-term.
Inflation readings did not derail a 25 basis point easing in the fed funds target rate at the December 17-18 meeting, but these did affect the FOMC's collective forecast. The outlook for rate cuts in 2025 was reduced to probably two cuts of 25 basis points and likely those cuts would be later than originally thought.
The minutes said,"With regard to the outlook for inflation, participants expected that inflation would continue to move toward 2 percent, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated. Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could. A couple of participants judged that positive sentiment in financial markets and momentum in economic activity could continue to put upward pressure on inflation. All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting foreign trade and immigration was elevated."
However,"solid" increases in GDP"was unlikely to be a source of upward inflation pressures". Neither were pressures seen from a labor market that had seen a resolution of supply and demand imbalances. The minutes said,"Some participants noted that the labor market could soften further, as the recent pace of payroll growth had been below the rate that would likely keep the unemployment rate constant, given a stable labor force participation rate."
Economic activity was anticipated to continue"to expand at a solid pace" supported by consumer spending at a time of a"solid labor market, rising real wages, and elevated household net worth". However,"Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending."
In the business sector, the minutes said,"several participants noted that favorable aggregate supply developments-including increases in labor supply, business investment, and productivity-continued to support a solid expansion of business activity. A majority of participants remarked that the behavior of equity markets reflected positive sentiment on the part of investors. Many participants also remarked that District contacts generally reported greater optimism about the economic outlook, stemming in part from an expectation of an easing in government regulations and changes in tax policies." However, uncertainty about"potential changes" in taxes and policies was present.
"The vast majority of participants viewed it as appropriate to lower the target range for the federal funds rate by 25 basis points to 4¼ to 4 1/2 percent," the minutes said. This suggests that Cleveland Fed President Beth Hammack's dissent in the vote was an outlier. However, it was probably not without support. The minutes said,"A majority of participants noted that their judgments about this meeting's appropriate policy action had been finely balanced. Some participants stated that there was merit in keeping the target range for the federal funds rate unchanged. These participants suggested that the risk of persistently elevated inflation had increased in recent months, and several of these participants stressed the need for monetary policy to help foster financial conditions that would be consistent with inflation returning sustainably to 2 percent."
The minutes said,"In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing. They also indicated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would be appropriate to continue to move gradually toward a more neutral stance of policy over time."
Risks to the outlook for monetary policy were deemed"roughly balanced" in achieving the dual mandate, but also that decisions were made with a"high degree of uncertainty" that warranted a more cautious approach to rate cuts.
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.
