The minutes of the Federal Open Market Committee’s (FOMC) last meeting showed participants looking through the temporary impact of hurricanes, with many seeing “the economy… operating at or above full employment.”
Some participants continue to fret about the persistence of weak inflation and worry that ongoing Fed tightening whilst inflation is below target could push inflation expectations down further and make the target harder to achieve.
Interestingly, a few participants considered whether the Fed should adjust its framework for achieving stable inflation to something akin to a price level target, requiring periods of weak inflation to be followed by stronger inflation in order to keep the overall price level growing at around 2%.
Finally, the minutes emphasized FOMC members’ satisfaction with the balance sheet normalization program. Further, “members generally agreed that the statement following this meeting needed to contain only a brief reference to the program and that subsequent statements might not need to mention the program.”
Key Implications
With economic data showing a firming in growth through the latter half of 2017 and potentially the longest string of quarterly growth over 3% (annualized) since 2004/2005, a December rate hike is close to a sure thing.
The debate continues to rage amongst Fed participants around when and if inflation will move toward target. Participants’ willingness to discuss other possible frameworks toward inflation shows that they are taking recent misses seriously and will react to further deviations from their goal.
Including Janet Yellen’s resignation, there are now four Federal Reserve board of governor seats up for grabs. This has the potential to dramatically change the tone and composition of the Federal Reserve and the future course of monetary policy and should be watched closely by investors.
