Updated: 08-27-2014The minutes from the July 29-30 FOMC meeting were 11 pages in length. Per usual, they provided a cogent summary of the discussions held at that meeting on a host of policy-related topics. What they also provided was a whole bunch of information the market already held in trust based on past communications and incoming data.
- The US economy wasn't as strong as anticipated in the first half of the year, but the second half of the year should be better
- Inflation is moving toward the Fed's longer-run target of 2.0%, but the move is expected to be slow
- While many parts of the economy are showing promise, the housing recovery remains slow
- The vulnerabilities in the financial system were generally seen as well contained
- The labor market continues to show signs of improvement, yet many participants still see "...a larger gap between current labor market conditions and those consistent with their assessments of normal levels of labor utilization than indicated by the difference between the unemployment rate and estimates of its longer-run normal level."
- Most participants wanted to see more data before changing their expectations for the appropriate timing of the first increase in the fed funds rate
- Many participants agreed that if convergence toward the Fed's objectives occurred more quickly than expected, it might become appropriate to start raising the fed funds rate sooner than they currently anticipated
- Note: the fed funds futures market currently assigns a 70% probability to the first hike occurring at the July 2015 meeting
By and large, there was nothing in the minutes to strike any true concern in the market that the Fed is poised to move off the zero bound anytime soon.
There was some knee-jerk trading action in the markets following the release of the minutes, yet that is typical as traders parse the headlines before digging into the body of the content.
That dig didn't excavate anything the markets didn't already know or hadn't already taken for granted that the FOMC discussed. Accordingly, the minutes from the July meeting can be regarded as a necessary, but unsurprising, read with little trend-setting value.
--Patrick J. O'Hare, Briefing.com