With three dissenters and no good reason (based on their own data) to stay on hold in September, The Fed chickened out... but jawboned the hawkish tilt afterwards. With Nov odds at 19% and Dec at 66%, the USD and Treasury yields were falling dovishly into the Minutes.
- *FED: SEVERAL OFFICIALS SAID DECISION TO WAIT WAS ‘CLOSE CALL’
- *FED SAYS SEVERAL FOMC MEMBERS SAW RATE RISE ‘RELATIVELY SOON’
- *FED: IT WAS NOTED ‘REASONABLE ARGUMENT’ COULD BE MADE TO HIKE
“Several participants expressed concern that continuing to delay an increase in the target range implied a further divergence from policy benchmarks based on the committee’s past behavior or risked eroding its credibility” especially because recent data supported the committee’s outlook, the minutes stated.
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Stocks remain flat post-Fed but will the Minutes change the hawkish tilt to PMs...
And while rate hike odds have soared for Dec, they have slumped for Nov no matter how much jawboning they have tried since.
Here are the key sections:
First, why no action - blame labor market slack, and lack of inflation (at least as measured by the BLS), in other words the Fed is failing on both mandates:
... participants discussed whether available information warranted taking another step to reduce policy accommodation at this meeting. Participants generally agreed that the case for increasing the target range for the federal funds rate had strengthened in recent months. Many of them, however, expressed the view that recent evidence suggested that some slack remained in the labor market. With inflation continuing to run below the Committee’s 2 percent objective and few signs of increased pressure on wages and prices, most of these participants thought it would be appropriate to await further evidence of continued progress toward the Committee’s statutory objectives.
However, others are increasingly calling the Fed out on its bullshit:
... several participants expressed concern that continuing to delay an increase in the target range implied a further divergence from policy benchmarks based on the Committee’s past behavior or riskede roding its credibility, especially given that recent economic data had largely corroborated the Committee’s economic outlook.
Even so, "several members" said to hike soon:
Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the Committee expected; they saw the new sentence in the third paragraph of the Committees statement -- a sentence indicating that the case for an increase in the federal funds rate had strengthened but that the Committee had decided, for the time being, to wait for further evidence of continued progress toward its objectives -- as reflecting this view.
Why the dissenters dissented:
Three members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting. They cautioned that postponing policy firming for too long could push the unemployment rate markedly below its longer-run normal rate over the next few years. If so, the Committee might then need to tighten policy more rapidly, thereby posing risks to continued economic expansion. A couple of these members expressed concern about the potential adverse effects on the credibility of the Committees policy communications if the next step in the gradual removal of accommodation was further postponed.
Ultimately, it was a close call:
Among the participants who supported awaiting further evidence of continued progress toward the Committees objectives, several stated that the decision at this meeting was a close call. Some participants believed that it would be appropriate to raise the target range for the federal funds rate relatively soon if the labor market continued to improve and economic activity strengthened, while some others preferred to wait for more convincing evidence that inflation was moving toward the Committees 2 percent objective. Some participants noted the importance of clearly communicating to the public the conditions that would warrant an increase in the policy rate.
And then there was this amusing blurb on Fed reflexivity:
Asset prices moved within a fairly narrow range for much of the intermeeting period, although volatility increased somewhat in the last few days of the period as market participants focused on central bank communications in the United States and abroad.
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Full Minutes below: