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
FOMC minutes for Oct 28-29, 2008
The Fed minutes for the October 28-29, 2008 FOMC meeting show members increasingly concerned about the economy but also over the eventual impact of interest rates close to zero. Concern over the economy is seen in the Fed's revisions in its economic forecast.
The Fed lowered its quarterly forecast for the economy by about 1.2 percent for 2008 and about 1.9 percent for 2009. The Q4/Q4 forecast for real GDP for 2008 is now a range of 0.0 to 0.3 percent and that for 2009 is -0.2 to 1.1 percent. The annual growth rates imply a very negative fourth quarter 2008 and negative early 2009. The unemployment rate for 2008 is now seen ranging from 6.3 to 6.5 percent while that for 2009 is projected to range from 7.1 to 7.6 percent.
However, the Fed's inflation numbers have come down. Headline inflation was revised down about 1 percentage point for 2008 and about three-fourths percentage point for 2009. Headline PCE price inflation is projected to be 2.8 to 3.1 percent Q4/Q4 for 2008 and 1.3 to 2.0 percent for 2009. Core PCE price inflation is seen ranging 2.3 to 2.5 percent this year but is projected to ease to 1.5 to 2.0 percent in 2009.
The downward revisions to economic growth were mainly due to "substantial shifts" in FOMC participants' views of second half growth. Consumer confidence and spending were seen as weaker, household wealth had fallen due to stock market losses, financial markets had only limited improvement, and exports were expected to slow.
In contrast to the prior FOMC meeting, risks to inflation were seen on both the upside and downside-largely due to uncertainty over the direction of oil prices but also due to a weaker economy.
Regarding the decision to cut the fed funds target by 50 basis points to 1 percent, there was substantial discussion within the FOMC. Some members stated that the Fed still needed to be prepared to withdraw the additional liquidity at the appropriate time. Others focused on the fact that financial market conditions had reduced the effectiveness of easing and that further cuts may be needed. Still others noted that the Fed had little room left for further policy moves and should move cautiously. Overall, the FOMC saw the need to cut further due to unexpected and continuing weakness in the economy.
"Members also saw the substantial downside risks to growth as supporting a relatively large policy move at this meeting, though even after today's 50 basis point action, the Committee judged that downside risks to growth would remain."
The bottom line is that the Fed still sees downside risks to the economy and the door is still open for additional rate cuts. However, the Fed's downward revisions to economic growth and upward revisions to the unemployment rate should be disconcerting.
The FOMC minutes bumped stocks modestly lower from their already 200-plus point decline from yesterday's close.
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