FOMC Minutes: What They Mean For Markets
Minutes from the FOMC's September meeting released on Wednesday afternoon reaffirmed the Fed's commitment to raising interest rates until inflation reaches the official target—of 2%.
The minutes began with the usual review of the economic conditions, stating that the economy is weakening faster than expected back in July. That's due to "disappointing productivity growth" and "sluggish" labor force participation. But there was no mention of the word "recession."
Instead, the discussion moved to inflation, which the FOMC participants found elevated, well above its longer-run goal of 2%.
Most concerning for FOMC participants was the stubbornly high "core inflation," which excludes food and energy from the calculations.
"These participants considered this development as potentially indicating that the shift of household spending from goods to services might be having a smaller effect on goods prices than they expected or that the supply bottlenecks and labor shortages were taking longer to be resolved," read the FOMC minutes.
Thus, the Fed's adherence to restrictive monetary policy.
"In light of the broad-based and unacceptably high level of inflation, the intermeeting news of higher-than-expected inflation, and upside risks to the inflation outlook, participants remarked that purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations," read the FOMC minutes.
George Ball, chairman of Houston-based investment firm Sanders Morris Harris, thinks that Wednesday's minutes confirm the Fed's hawkish stance.
"The Fed has to keep talking about and implementing additional rate hikes," he told International Business Times in an email. "Otherwise, all it's done to fight inflation up until now is wasted baggage. While inflation has peaked, the path to a 2% inflation rate will be long, windy, and bumpy."
Wall Street didn't know what to make of the Fed's minutes, as it was striving to absorb the firm September Producer Price Index numbers released in the morning.
In the end, bond prices closed slightly higher and equity prices marginally lower for the day in anticipation of the September Consumer Price Index report on Thursday morning.
Ball sees the market remaining negative until mid-November. At that point, he thinks Fed officials will likely start to signal that a pause in rate hikes is on the horizon sometime in early 2023.
"That will be the tipping point where stocks start to rise again," he said. "While this Fed pivot may mean that the economy is in a recession, markets look ahead by about six months, and a belief that there won't be more rate hikes after early 2023 will psychologically return the ascendancy of the bull."
© Copyright IBTimes 2024. All rights reserved.