Instead of reading between the lines of the 28 page FOMC minutes, we have The Wall Street Journal's Jon Hilsenrath [7] to explain to us what we should believe. His message is not dovish. Despite tumult in financial markets, weak economic conditions abroad, and risks that low inflation could drift lower, Hilsenrath notes that the Fed forged ahead with a decision to end the central bank’s bond-buying program because the domestic economy and labor market appeared to be on course for further improvement. Furthermore, officials added a new twist: a debate about whether they should add new information in their official policy statement on how quickly rates will rise once increases commence.
Via The Wall Street Journal, [7]
Federal Reserve officials were preoccupied at an October policy meeting with tumult in financial markets, weak economic conditions abroad and risks that low inflation could drift lower. But they forged ahead with a decision to end the central bank’s bond-buying program because the domestic economy and labor market appeared to be on course for further improvement.
Participants at the Oct. 28-29 meeting “pointed to a somewhat weaker economic outlook and increased downside risks in Europe, China, and Japan, as well as to the strengthening of the dollar over the period,” said minutes of the session, which were released Wednesday with the regular three-week lag.
“It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected,” the minutes said. “However, many participants saw the effects of recent developments on the domestic economy as likely to be quite limited.”
...
Downward pressure on inflation is a more recent development.
“Most participants anticipated that inflation was likely to edge lower in the near term, reflecting the decline in oil and other commodity prices and lower import prices. These participants continued to expect inflation to move back to the Committee’s 2 percent target over the medium term,” the minutes said.
...
With the program now completed, many Fed officials are looking to drop the “considerable time” assurance. But the minutes left little clear indication of when and how this guidance might be changed.
Some officials wanted to drop the term at the October meeting. They didn’t want to appear locked into a specific time frame for their plans. “Considerable time” is generally interpreted in financial markets to mean at least six months, though the Fed has sought to play down that notion. Other officials thought this phrase still best described their plans, while others didn’t want to inadvertently send a signal of impending rate increase by removing the phrase.
To this discussion officials added a new twist: A debate about whether they should add new information in their official policy statement on how quickly rates will rise once increases commence.
...
“Some participants pointed out that, despite the market volatility, financial conditions remained highly accommodative and that further pockets of turbulence were likely to arise as the start of policy normalization approached,” the minutes said. “That said, more work to better understand the recent market dynamics was seen as desirable.”
