FOMC September Meeting Minutes

The Federal Reserve Open Market Committee (FOMC) meeting for the month of September reflected that the members of the committee had reached an agreement that the case for an interest rates raise had been strengthened. And again the Feds failed to make any comments on the time frame of the next rates hike and the overall outlook was marginally more dovish than anticipated. With some slack remaining in the labor market and inflation continuing to run below the Committee’s objectives, a majority of members judged that, for the time being, the FOMC should await further evidence of progress towards its objective of maximum employment and 2% inflation before increasing the target range for the Federal Funds rate.

“Some participants believed that it would be appropriate to raise the target range for the federal funds rate relatively soon if the labor market continued to improve and economic activity strengthened, while some others preferred to wait for more convincing evidence that inflation was moving toward the Committee’s 2% objective,” the Fed said in minutes of the Sept. 20-21 meeting, released Wednesday on the usual three-week lag.

The Fed held off on raising rates at the meeting even though it said the case for higher borrowing costs had “strengthened.” In a summary of economic projections released following the meeting, a majority of officials indicated it would be appropriate to raise rates once before the end of the year. The Fed last raised rates in December 2015, after keeping them near zero for several years after the 2008 financial crisis.

The minutes did, however, note that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation. As far as inflation is concerned, many members remarked that there were few signs of emerging inflationary pressures while progress on meeting inflation targets had been slow.

The minutes revealed that the decision to stand pat was a “close call.” The Feds have two more meetings left this year, in early November and December. Investors expect the next rate move will come in December, after the U.S. presidential election. “It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation,” the minutes said.

Meanwhile Traders still forecast that the Feds will announce a hike in December, though the probability is less than 60%. Overall, FOMC members felt the economy was making progress, though they continued to worry over business investment. Some members at the meeting also noted that weakness in capital expenditures is starting to expand beyond energy and into other sectors.

The US currency did weaken after the minutes with EUR/USD edging back to the 1.1040 area, although USD/JPY held above 104.00. 10-year Treasury bonds moved back to unchanged on the day while equities remained slightly higher, although the overall market reaction was limited.