Highlights
The minutes of the September 16-17 FOMC meeting reflect conditions three weeks ago and before the start of the government shutdown on October 1. The shutdown and consequent delay in released government data reports will deeply impact the FOMC's ability to accurately set monetary policy until the flow of data is restored. The next FOMC meeting on October 28-29 will probably have to work without important information likely the monthly employment report for September (originally scheduled for October 3) and the September consumer price index (originally scheduled for October 15).
Public comments from Fed officials since the start of the shutdown highlights the increased uncertainty they face in properly calibrating interest rates. How much the shutdown eventually affects the US economy will in part depend on its duration. It will also depend on any actions the Trump administration takes regarding more policy decisions about reshaping the federal government and if furloughed workers are going to lose pay or their jobs. Nonetheless, the FOMC will likely cut rates again at the upcoming meeting, but voice their caution until they can get more data.
Central to the FOMC discussions, more weight was given in the balance of risks to the maximum employment side of the dual mandate compared to that of price stability. Attention was paid to the recent increases in inflation which remained somewhat elevated, while inflation expectations were still seen as well-anchored. However, the downside risks to employment were seen as heightened with reduced labor market demand.
The minutes mentioned a number of labor market indicators other than payrolls that bear watching. The minutes said, These included the unemployment rate, the ratio of job vacancies to unemployed workers, wage growth, the percentage of unemployed workers who find a job, the quits rate among employed workers, and the layoff rate. The FOMC also took noted of the BLS's preliminary benchmark revision as indicating that labor market conditions had been softening for longer than was previously reported.
What may be most interesting in the minutes is that at the time of the meeting, not only was there support for a rate cut, but that there was consideration of no change in rates. A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision. These participants noted that progress toward the Committee's 2 percent inflation objective had stalled this year as inflation readings increased and expressed concern that longer-term inflation expectations may rise if inflation does not return to its objective in a timely manner. One participant agreed with the need to move policy toward a more neutral stance but preferred a 1/2 percentage point reduction at this meeting.
Public comments from Fed officials since the start of the shutdown highlights the increased uncertainty they face in properly calibrating interest rates. How much the shutdown eventually affects the US economy will in part depend on its duration. It will also depend on any actions the Trump administration takes regarding more policy decisions about reshaping the federal government and if furloughed workers are going to lose pay or their jobs. Nonetheless, the FOMC will likely cut rates again at the upcoming meeting, but voice their caution until they can get more data.
Central to the FOMC discussions, more weight was given in the balance of risks to the maximum employment side of the dual mandate compared to that of price stability. Attention was paid to the recent increases in inflation which remained somewhat elevated, while inflation expectations were still seen as well-anchored. However, the downside risks to employment were seen as heightened with reduced labor market demand.
The minutes mentioned a number of labor market indicators other than payrolls that bear watching. The minutes said, These included the unemployment rate, the ratio of job vacancies to unemployed workers, wage growth, the percentage of unemployed workers who find a job, the quits rate among employed workers, and the layoff rate. The FOMC also took noted of the BLS's preliminary benchmark revision as indicating that labor market conditions had been softening for longer than was previously reported.
What may be most interesting in the minutes is that at the time of the meeting, not only was there support for a rate cut, but that there was consideration of no change in rates. A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision. These participants noted that progress toward the Committee's 2 percent inflation objective had stalled this year as inflation readings increased and expressed concern that longer-term inflation expectations may rise if inflation does not return to its objective in a timely manner. One participant agreed with the need to move policy toward a more neutral stance but preferred a 1/2 percentage point reduction at this meeting.
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.
