On December 14, 2004, the Federal Open Market Committee announced that they would release the minutes of each meeting with a three week lag. This is a vast improvement from the previous release of the minutes which ranged from a six to eight week lag. While the FOMC releases a statement after each meeting which describes the policy action (or inaction), the minutes generate a lot of attention in the financial markets because they reveal more details on the discussion of the most recent FOMC meeting. Why Investors Care
Highlights
The minutes of the FOMC meeting held on September 18, 2007 showed the Fed clearly concerned about subprime credit problems leading to more adverse effects on the economy. The latest minutes give some hope to those expecting another rate cut Halloween afternoon at the end of the upcoming FOMC meeting. At the September 18 meeting, the FOMC unanimously voted to cut the fed funds target rate and discount rate by 50 basis points to both boost the economy and improve performance of the financial markets. The Fed was particularly concerned about how financial markets essentially were seizing.
"Short-term financial markets came under pressure over the intermeeting period amid heightened investor unease about exposures to subprime mortgages and to structured credit products more generally. Rates on asset-backed commercial paper and on low-rated unsecured commercial paper soared, and some issuers, particularly asset-backed commercial paper programs with investments in subprime mortgages, found it difficult to roll over maturing paper. These developments led several programs to draw on backup lines, exercise options to extend the maturity of outstanding paper, or even default. As a result, asset-backed commercial paper outstanding contracted substantially. Investors sought the safety and liquidity of Treasury securities, and yields on Treasury bills dropped sharply for a period; trading conditions in the bill market were impaired at times. Meanwhile, banks took measures to conserve their liquidity and were cautious about counterparties' exposures to asset-backed commercial paper."
The Fed lowered its outlook for real growth slightly but still sees continuing moderate growth due to a strong international sector and business investment while the consumer continues to contribute positively.
The FOMC members remain cautious on inflation risks, however. The Fed acknowledged recent improvement in core inflation but still sees upside risks from "rising unit labor costs," high resource utilization, and a decline in the dollar. Notably, the FOMC apparently never did believe that labor markets were as weak as indicated by the initially reported decline in August payrolls.
The markets see the latest minutes as suggesting that the Fed may but a little less hawkish than heard in much Fed Speak. Taken at face value, the Fed is still watching incoming data and likely still has not made a decision on the next rate cut.
The FOMC next meets October 30 and 31.
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