Updated: 10-17-2018

The minutes from the September Federal Open Market Committee (FOMC) meeting lived up to their advanced billing. That is, they didn't convey any sense that the FOMC would be backing away from its position that it is apt to pursue a gradual rate-hike path.

That gradualist policy, however, is a little bit of cold comfort now, because the minutes also left the impression that the target range for the fed funds rate could be lifted above the long-run rate before the current tightening cycle is done.

In other words, the pace might be gradual, but the path to a neutral rate might not be as short as some would like.

The target range for the fed funds rate was raised to 2.00% to 2.25% at the September meeting; meanwhile, the latest projection from Federal Reserve Board members shows the median estimate for the long-run rate at 3.00%.

There could be at least four more rate hikes, then, to get to the so-called neutral rate, yet the minutes have left an opening for additional rate hikes once the long-run rate is reached.

That message was reflected in the following passage from the minutes:

"A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee's 2 percent inflation objective or the risk posed by significant financial imbalances."

The minutes left some wiggle room for the FOMC to deviate from what many market participants see as an increasingly hawkish posture. Specifically, there was the conclusion that incoming data and its implications for the economic outlook would drive future adjustments to the target range for the fed funds rate.

That implies the outlook for more rate hikes could be dialed down if the incoming data show a dialing down of economic activity that threatens the FOMC's objective of sustaining 2.00% inflation.

Only time will tell, but for now, the minutes have largely rehashed what the market knew at the time of the September FOMC meeting and what it knows today: the FOMC expects to keep raising interest rates.

--Patrick J. O'Hare, Briefing.com

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