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 FOMC minutes of the September 16, 2008 meeting showed an FOMC united in currently focusing on stabilizing the credit markets. The FOMC - by a vote of 10 to 1 - kept the fed funds target rate unchanged at 2 percent. While the FOMC saw increased downside risks to economic growth, the inflation outlook remained uncertain. At the meeting, members of the FOMC did have different views on whether the next move will be up or down. Despite the current credit market problems and economic weakness, some members are still concerned that the Fed be ready to withdraw liquidity in a timely fashion after the economic starts to improve.
"With substantial downside risks to growth and persisting upside risks to inflation, members judged that leaving the federal funds rate unchanged at this time suitably balanced the risks to the outlook. Some members emphasized that if intensifying financial strains led to a significant worsening of the growth outlook, a policy response could be required; however, such a response was not called for at this meeting. Indeed, it was noted that, with elevated inflation still a concern and growth expected to pick up next year if financial strains diminish, the Committee should also remain prepared to reverse the policy easing put in place over the past year in a timely fashion."
The Fed staff left its projection for real GDP growth in the second half of 2008 as essentially flat, but it marked down its forecast for 2009 slightly, resulting in a less strong recovery. For inflation, the Fed still expects core and headline PCE inflation to ease in 2009 and 2010.
But FOMC participants did bring their focus back to problems in the credit markets, noting that credit market problems had worsened.
"Participants noted that stresses on financial markets and institutions had increased. The announcement of government support for Fannie Mae and Freddie Mac appeared to have had a positive impact on financial markets, most importantly on the primary and secondary markets for residential mortgages. However, the bankruptcy of Lehman Brothers and market concerns about other financial institutions were causing a wide variety of financial firms to experience increasing difficulty in obtaining funding and raising capital, a development that was likely to lead to a further tightening of credit availability to households and firms."
"Members agreed that keeping the federal funds rate unchanged at this meeting was appropriate. The current low real federal funds rate appeared necessary to provide adequate counterweight to the restraining effects of tight credit conditions and of continued declines in the housing market on spending and output."
The bottom line is the Fed had returned its focus back to restoring the function of credit markets at the most recent FOMC meeting. Although the door is open for further rate cuts, the Fed is still trying to stabilize the credit markets with liquidity provided through its new lending facilities. Another rate cut could provide some symbolic action to bolster the economy, but with rates already extremely low, the Fed's real impact now is through its credit facilities.
| 2008 Release Schedule | ||||||||||||||||||
|
powered by
![[Econoday]](../../../../../../../../../images/logo.gif){kind=logo}