The Federal Reserve has released the minutes from the September 16 to 17 FOMC meeting. While the market was not looking for any massive step up on the time that Janet Yellen and team would  start raising rates, the big hope is that perhaps some would find out who was more hawkish who might not have been previously. it turns out that a number of staff were concerned about global weakness, and the staff lowered its inflationary expectations ahead.

The information suggested that economic activity was expanding at a moderate pace and that labor market conditions improved a little further. Consumer price inflation was running below the FOMC’s longer-run objective of 2%, but measures of longer-run inflation expectations remained stable.

The projection for growth in real GDP in the second half of this year was revised down slightly from the one prepared for the previous meeting. Also, the staff’s near-term forecast for inflation was a little lower than the projection prepared for the previous FOMC meeting.

The Committee also said that it intends to reduce the Fed’s securities holdings in a gradual and predictable manner and that new funds used would no longer purchase Treasury and mortgage-backed securities after October. The first measure will be mostly by ceasing to reinvest repayments of principal on securities held. It said,

“The Committee expects to cease or commence phasing out reinvestments after it begins increasing the target range for the federal funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve… The Committee currently does not anticipate selling agency mortgage-backed securities as part of the normalization process, although limited sales might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public in advance.”

As far as how fast and how it will raise rates, the FOMC minutes said,

“When economic conditions and the economic outlook warrant a less accommodative monetary policy, the Committee will raise its target range for the federal funds rate. During normalization, the Federal Reserve intends to move the federal funds rate into the target range set by the FOMC primarily by adjusting the interest rate it pays on excess reserve balances. During normalization, the Federal Reserve intends to use an overnight reverse repurchase agreement facility and other supplementary tools as needed to help control the federal funds rate. The Committee will use an overnight reverse repurchase agreement facility only to the extent necessary and will phase it out when it is no longer needed to help control the federal funds rate.”

Participants agreed that it would be appropriate now to provide additional information regarding their approach to normalization where participants’ views would help the public understand the steps that the Committee plans to take when the time comes to begin the normalization process. Still, the FOMC emphasized that it needs to be flexible and pragmatic during normalization and that it can adjust the details of its approach.

Stocks have risen after the minutes were showing ales hawkish Fed. The S&P 500 was up over 16 points and the DJIA was up over 150 points.

FULL FOMC MINUTES

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