Given the tumble and stock save since September's infamous "chickening out" FOMC Meeting, investors hope today's minutes will provide some color on just how close Janet and her merry men were to pulling the trigger:
- *FED OFFICIALS SAID `PRUDENT' TO WAIT FOR CLARITY ON OUTLOOK
- *FOMC MINUTES: MOST PARTICIPANTS SEE LIFTOFF CONDITIONS MET THIS YR
- *FOMC MINUTES: ALL BUT ONE MEMBER SAID ECON COND DIDN'T WARRANT HIKE
With all the blame pinned on global turmoil (which has now "calmed" apparently) the S&P 500 has roundtripped to unchanged post-FOMC and given these minutes which suggest this was not a close-call at all. However, this was before the Sept payrolls data.
Pre-FOMC Minutes: S&P Futs 1988.25, 10Y 2.095%, Gold $1145, EUR 1.1285
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More headlines:
- *SOME OFFICIALS SAID STOCK-PRICE DROP REFLECTED HIGH VALUATIONS
- **FOMC MINUTES: MANY MEMBERS SEE LIFTOFF CONDTNS MET THIS YEAR
- *SOME OFFICIALS SAID PREMATURE RATE RISE WOULD HURT CREDIBILITY
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Pre-FOMC Minutes, Fed Funds Futures implied the following odds of a rate hike...
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Gold and the Long Bond have notably outperformed since the FOMC Statement as the S&P has rallied all the way back to unchanged... (Silver & Crude are both up 5% since the FOMC Statement).
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Charts: Bloomberg
Here are the key sections from the minutes:
The summary assessment:
After assessing the outlook for economic activity, the labor market, and inflation and weighing the uncertainties associated with the outlook, all but one member concluded that, although the U.S. economy had strengthened and labor underutilization had diminished, economic conditions did not warrant an increase in the target range for the federal funds rate at this meeting. They agreed that developments over the intermeeting period had not materially altered the Committee’s economic outlook. Nevertheless, in part because of the risks to the outlook for economic activity and inflation, the Committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and bolstering members’ confidence that inflation would gradually move up toward 2 percent over the medium term. One member, however, preferred to raise the target range for the federal funds rate at this meeting, indicating that the current low level of real interest rates was not appropriate in the context of current economic conditions.
Blame China:
- ... recent indicators for some other countries, most notably China, were subdued....
- ... Although U.S. economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period....
- ... A material slowdown in economic growth in China and potential adverse spillovers to other economies were likely to depress U.S. net exports to some extent....
- ... In addition, concerns associated with developments in China and other emerging market economies had contributed to a further appreciation of the dollar and declines in prices of oil and other commodities, which were likely to hold down U.S. consumer price inflation in the near term...
- ... Members noted that recent global and financial market developments might restrain economic activity somewhat as a result of the higher level of the dollar and possible effects of slower economic growth in China and in a number of emerging market and commodityproducing economies....
... Coupled with concerns about credibility:
Some participants were concerned that the downside risks to inflation could be realized if the target range for the federal funds rate was increased before it was clear that economic growth would remain at an above-trend pace and downward pressures on inflation had abated. They also worried that such a premature tightening might erode the credibility of the Committee’s inflation objective if inflation stayed at a rate below 2 percent for a prolonged period.
The biggest lie:
During their discussion of economic conditions and monetary policy, participants indicated that they did not see the changes in asset prices during the intermeeting period as bearing significantly on their policy choice except insofar as they affected the outlook for achieving the Committee’s macroeconomic objectives and the risks associated with that outlook.
And finally this is why the minutes are no longer relevant:
Members agreed that labor market conditions had improved considerably since earlier in the year, with ongoing solid gains in payroll employment and the unemployment rate falling to a level quite close to their estimates of its longer-run normal rate
This will hardly be the case after the lousy September payrolls.
Full FOMC Minutes below...