Highlights
The FOMC minutes of the August 5, 2008 meeting show the Fed increasingly concerned about inflation but currently focusing on fragility in the financial markets. At the latest FOMC meeting, the members voted to keep the fed funds target rate unchanged at 2 percent with the vote 10 to 1. Dallas Fed President Richard Fisher voted to increase the target rate. However, most FOMC members see the next policy move as raising rates but the timing is dependent on incoming data. Some members argued that current policy is not that accommodative because of the tight credit market. The Fed noted that there are both downside and upside risks.

"In their discussion of the economic situation and outlook, many FOMC participants noted that recent developments suggested that economic activity was likely to remain damped for several quarters. Although economic growth in the second quarter had apparently been boosted by fiscal stimulus, resilience in consumption spending even before tax rebates were distributed, and robust gains in exports, recent indicators pointed to a near-term deceleration in household spending and to softer export demand. Moreover, increasing concerns about financial institutions had contributed to a widening of some risk spreads and a further tightening of credit to households and businesses. Growth in overall economic activity was generally expected to be weak during the remainder of 2008 before recovering modestly next year, and nearly all meeting participants saw continuing downside risks to growth."

A number of members were concerned that core inflation will not moderate without tightening soon.

"Participants expressed significant concerns about the upside risks to inflation, especially the risk that persistently high headline inflation could result in an unmooring of long-run inflation expectations. Some viewed the upside risks to inflation as having diminished modestly over the intermeeting period, mainly as a result of the drop in the prices of oil and some other commodities as well as the greater likelihood of persistent economic slack. However, others viewed these risks as having increased, particularly in light of continued elevated readings on headline inflation, the low level of the real federal funds rate, anecdotal information suggesting that firms were having more success in passing higher costs on to their customers, and some signs of an upward drift over recent months in investors' expectations and uncertainty regarding inflation over the longer run; moreover, the recent decline in energy prices might well be reversed in coming months. A number of participants worried about the possibility that core inflation might fail to moderate next year unless the stance of monetary policy was tightened sooner than currently anticipated by financial markets."

The bottom line is that the Fed is still waiting for signs that credit markets have sufficiently stabilized. Once the Fed is convinced of sufficient improvement in the financial markets, the Fed will be raising rates.

2008 Release Schedule

Released On: 1/2 2/20 4/8 5/21 7/16 8/26 10/7 11/19 Released For: Dec Jan Mar Apr Jun Aug Sep Oct