FOMC Minutes October 29-30 Preview: Reinforcing the rate pause

• October meeting cut fed funds rate 0.25%, the third decrease this year
• Base rate at a 1.50%-1.75% target range
• Fed policy moved to neutral awaiting data confirmation

The Federal Reserve will issue the edited minutes of the October 29-30 Federal Reserve Open Market Committee (FOMC) meeting on Wednesday, November 20^th at 19:00 GMT, 14:00 EST

FOMC policy and the US economy

The completion of the Federal Reserve’s “insurance policy”, so named by Chairman Jerome Powell, has bought the base rate to 1.50%-1.75% where it was a little more than a year ago on the first of May 2018.

Domestic economic concerns played small part in the Fed’s abrupt switch to an accommodative posture at the end of July.

The US economy has cooled from its 3.1% annualized growth rate in the first quarter to 2.0% in the second, 1.9% in the third and is tracking at 0.4% in the Atlanta Fed’s GDPNow estimate in the  final three months of the year, yet job creation and consumer spending remain healthy.  

US Annualized GDP

FXStreet

The decline in GDP this year was due to the drop in business investment curtailed by the planning impediments of the almost two-year old US-China trade dispute. The control group category of retail sales that enters the Bureau of Economic Analysis’ GDP calculation averaged an expansive 0.4% gain in the year to October.

The labor market continues to produce far more employment than the economy can fill, 176,000 new positions in the three month average in October and 174,000 monthly in the prior year. Wages have increased at 3.0% or more annually for 15 months and the 3.6% unemployment rate is within 0.1% of a five decade low.  The unemployment rates for African-Americans and Hispanics are at record lows.

Reuters

It was to preserve these gains in the face of a global economic slowdown and the disruptions of the China trade war that the Fed governors adopted the “mid-term adjustment”. The rate reductions were however not without contention.  At each of the meetings that produced a 25 basis point rate cuts, two governors,  Esther George of Kansas City and Eric Rosengren of Boston, voted against the cut preferring the existing target range,  2.25%-2.50% in July, 2.00% to 2.25% in September and 1.75%-2.0% in October.

Fed Funds Rate

FXStreet

The move to a neutral policy at the October meeting and the bank’s return to active data monitoring as a precursor to future policy adjustments was reinforced by Chairman Jerome Powell’s appearance in Congress on November 13^th and 14^th in his bi-annual economic testimony.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near ...our 2 percent objective," noted Mr. Powell.

FOMC Minutes

These FOMC minutes have been largely superseded by Chairman Powell’s appearance in Congress last week where he elaborated on Fed policy and motivation at length.

The US economy is stable without immediate or extensive problems aside from the shortage of business investment that may improve if the bruited US-China trade deal is signed.

Though it is unlikely that they will reveal any new information the minutes will provide a more detailed and anecdotal view of Fed deliberations, the voting split and the extent of the support for the new pause.   They will also give some hints to the economic outlook of the governors with a view towards the December release of the last set of Projections Materials for the year.

Markets will pass over the release in silence even if analysts and economists examine the entrails for clues to the future.