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FOMC Minutes: What You Need to Know - Real Time Insight

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The minutes of the Federal Open Market Committee's July 29-30 meeting were released today. Here are the highlights:

  • The economy is growing modestly but should pick up steam soon:

"[R]eal gross domestic product (GDP) rebounded in the second quarter following its first-quarter decline, but it expanded at only a modest pace, on balance, over the first half of the year."

"The staff's medium-term forecast for real GDP growth was also little revised. The staff continued to project that real GDP would expand at a faster pace in the second half of this year and over the next two years than in 2013."

  • The labor market is improving faster than expected, but slack remains:

"In response to a further downward surprise in the unemployment rate, the staff again lowered its forecast for the unemployment rate over the projection period."

"Participants generally agreed that both the recent improvement in labor market conditions and the cumulative progress over the past year had been greater than anticipated and that labor market conditions had moved noticeably closer to those viewed as normal in the longer run. Participants differed, however, in their assessments of the remaining degree of labor market slack and how to measure it."

  • Deflation fears are diminishing, but inflation risks still remain low:

"Consumer price inflation rose somewhat in the second quarter, but futures prices for energy and agricultural commodities generally were trending down over the next couple of years and longer-run measures of inflation expectations remained stable."

"The staff's near-term forecast for inflation was revised up a little, as recent data showed somewhat faster-than-anticipated increases that were judged to be only partly transitory. With a little less resource slack in this projection, the medium-term forecast for inflation was also revised up slightly. Nonetheless, as in the June projection, inflation was projected to step down in the second half of this year and to remain below the Committee's longer-run objective of 2 percent over the next few years."

"Most now judged that the downside risks to inflation had diminished, but a few participants continued to see inflation as likely to persist below the Committee's objective over the medium term. Several commented that the upside risks had not increased. However, a few others argued that the recent tightening of the labor market had increased the upside risks to inflation and inflation expectations, particularly in an environment in which the economic expansion was expected to strengthen further."

  • Some FOMC members want to raise rates sooner rather than later:

"Moreover, many participants noted that if convergence toward the Committee's objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated. Indeed, some participants viewed the actual and expected progress toward the Committee's goals as sufficient to call for a relatively prompt move toward reducing policy accommodation to avoid overshooting the Committee's unemployment and inflation objectives over the medium term."

  • But Charles Plosser is Still a Lone Wolf:

"Mr. Plosser dissented [to the FOMC statement] because he objected to the statement's guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for 'a considerable time after the asset purchase program ends.' In his view, the reference to calendar time should be replaced with language that indicates how monetary policy will respond to incoming data. Moreover, he judged that the statement did not acknowledge the substantial progress that had been made toward the Committee's economic goals and thus risks unnecessary and disruptive volatility in financial markets, and perhaps in the economy, if the Committee reduces accommodation sooner or more quickly than financial markets anticipate."

  • Bubble Watch:

"The staff's periodic report on potential risks to financial stability concluded that relatively strong capital positions of U.S. banks, subdued use of maturity transformation and leverage within the broader financial sector, and relatively low levels of leverage for the aggregate nonfinancial sector were important factors supporting overall financial stability. However, the staff report also highlighted that low and declining risk premiums, low levels of market volatility, and a loosening of underwriting standards in a number of markets raised somewhat the risk of an eventual correction in asset valuations. "

"In their discussion of financial stability issues, participants noted evidence of valuation pressures in some particular asset markets, but those pressures did not appear to be widespread and other measures of vulnerability in the financial system were at low to moderate levels. As a result, they generally saw the vulnerabilities in the financial system as well contained."

Some analysts think these minutes indicate a more hawkish tone from the Fed.

What do you think? Chime in below!

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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