The most recent Federal Reserve Open Market Committee (FOMC) meeting minutes will be released at 2 pm this afternoon, possibly revealing the specifics of the committee's decision. The Fed held off on hiking interest rates at its September meeting by a vote of 9-to-1.
Most observers don't think that the minutes will reveal anything enlightening. The meeting took place after souring economic data had just been released. In the interim, the outlook has worsened even further. There is nonetheless some interest in "looking under the hood" of the Fed's decision.
Here are a few things to keep in mind when the meeting minutes come out this afternoon.
Several of the FOMC participants have remarked since the last meeting that it was a "close call" not to raise rates. Judging by the 9-to-1 vote, this seems dubious. It is true, however, that the committee is highly concerned with consensus. Perhaps the lopsided vote is simply a product of this desire for solidarity. Only Jeffrey Lacker, the President of the Richmond Fed, dissented from the majority view of the committee.
The members of the FOMC (even the handful of non-voting members) each contribute to the statement contained in the minutes. A review of their opinions may reveal some nuance about just how close of a call the "no rate hike" in September was.
China, Foreign Markets
Chair Janet Yellen mentioned China an inordinate amount of times in one of her recent press conferences. She was referencing the world's second-largest economy in discussing the risks for the global economy. The discouraging signs abroad are no doubt weighing on the Fed's decision about interest rates; continued uncertainty about economic conditions overseas is no doubt a factor that must be taken into account. These developments also lend credence to the International Monetary Fund's (IMF) warning to the Fed to hold off on raising rates. The Fund sees serious risks for global growth—even worse than it had previously envisioned.
After spending month after month talking about remaining slack in the labor market, the Fed is now in a bind. Because the central bank has waited so long to raise rates, it may not be able to use this data to justify another month without a rate hike. U3 unemployment is at a 7-year low of 5.1%. All indications are that (rightly or wrongly) the labor market has come into the Fed's target range, or at least very close to it. To claim there is still more slack in the job market would probably wear thin quickly.
GDP, the Dollar
Q3 GDP numbers come out three weeks from today on Thursday, October 29th. Unfortunately for the Fed, this month's FOMC meeting takes place just before GDP is announced. This means that the committee members will have to act without this all-important data. It stands to reason that this may tilt the scales toward the Fed not moving interest rates until at least December, when it has more information, perspective, and economic indicators at its disposal.
Where the committee thinks the dollar is going (and what effect that may have) will also be eagerly awaited. A strong dollar has eaten into U.S. exports and corporate profits overseas generally, both seen as a drag on the domestic economy. The twin problem of near-zero inflation is also bound to come up.
FOMC Counterparts Overseas
Also keep a watch on central banking news from Europe: The Bank of England's Monetary Policy Committee met this morning and decided to hold off on raising its own benchmark rates. Later today, the European Central Bank (ECB) is expected to release meeting minutes that might reveal how it sees policy changing over the near-term.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.