Minutes of the Federal Open Market Committee, July 25-26, 2023

The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. If the US economy is underperforming, this is bad news for many countries (those in the export market).

This economic indicator helps forex traders approach the market by trading the news. Once the news is released, there’s a lot of volatility that traders can rely on. Participants noted that since the November meeting, financial conditions had eased, with the market-implied path for the federal funds rate beyond 2023 and longer-term yields coming down noticeably. A few participants gann theory remarked that the current configuration of nominal yields, with longer-term yields lower than shorter-term yields, had historically preceded recessions and hence bore watching. However, a couple of them also noted that the current inversion of the yield curve could reflect, in part, that investors expect the nominal policy rate to decline because of a fall in inflation over time.

  1. An FOMC rate decision has a significant effect on other economic variables, including foreign exchange rates, short-term interest rates, the price of services and goods, and even employment.
  2. Consequently, while there were few signs of adverse wage-price dynamics at present, they assessed that bringing down this component of inflation to mandate-consistent levels would require some softening in the growth of labor demand to bring the labor market back into better balance.
  3. Several participants commented that they saw diminished risks of severe disruption from the European Union’s embargo and the Group of Seven’s price cap on Russian oil exports.

The Federal Open Market Committee (FOMC) is the division of the Federal Reserve that sets monetary policy by managing open market operations. By doing this, the Fed influences the fed funds rate, which impacts other interest rates. The FOMC does this to either contract or expand the economy, depending on current market conditions. The 12 members of the FOMC meet eight times a year to discuss whether there should be any changes to near-term monetary policy.

FOMC Minutes: What To Look For When Details From The Latest Fed Meeting Drop Wednesday

Bank credit data also indicate that the expansion in credit card balances continued in October before slowing in early November. Regarding the outlook for inflation in the United States, inflation compensation implied by Treasury Inflation Protected Securities declined over the period, responding to lower-than-expected consumer price index (CPI) data and a sizable drop in oil prices. However, the Desk survey-based measures of inflation expectations were little changed from the prior survey, suggesting that falling inflation risk premiums may have contributed to the moves. Both market- and survey-based measures continued to point to expectations for a moderation of inflation over the coming year. More specifically, they should be aware of the inflation rates, employment level, and overall economic growth.

What is the current inflation rate?

A couple of participants remarked on anecdotes or concerns from builder contacts about contract cancellations by purchasers no longer able to qualify for loans at higher interest rates. The volume of speculative-grade corporate bond downgrades slightly exceeded upgrades in October and November, while for investment-grade corporate bonds, the volume of upgrades turned positive, on net, in November. Leveraged loans experienced net downgrades in October, but the pace of net downgrades slowed substantially in recent weeks. Default rates on corporate bonds and leveraged loans remained at very low levels.

Fed Meeting Today: Jerome Powell Says March Rate Cut Not Likely

Overall, the meeting minutes from March came in better than many had expected and helped reassure the markets as to the Fed’s overall thesis. If there was any positive news in the minutes, it was that the economy is strong enough to stand on its own and ready for the monetary “training wheels” to come off. If the Fed https://traderoom.info/ did not believe this, they would not have signaled a more aggressive rate hike policy. Every six weeks or so, investors tune in to hear the interest rate decision announced by the Fed. The headline news itself is fairly straightforward and almost binary in its simplicity—will they or won’t they (change rates)?

Even so, participants remarked that the improvements in supply chains had not been uniform and supply shortages remained for some types of goods. Participants also discussed the developments in energy and agricultural sectors. Several participants commented that they saw diminished risks of severe disruption from the European Union’s embargo and the Group of Seven’s price cap on Russian oil exports. A couple of participants noted that high costs for inputs like diesel, feed, and fertilizer were creating challenges for the agricultural sector.

The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System. The FOMC is composed of 12 members–the seven members of the Board of Governors and five of the 12 Reserve Bank presidents. The Board chair serves as the Chair of the FOMC; the president of the Federal Reserve Bank of New York is a permanent member of the Committee and serves as the Vice Chair of the Committee. The presidents of the other Reserve Banks fill the remaining four voting positions on the FOMC on a rotating basis. All of the Reserve Bank presidents, including those who are not voting members, attend FOMC meetings, participate in the discussions, and contribute to the assessment of the economy and policy options.

The inflation drop-off means interest rates after adjusting for inflation are more restrictive than the Fed would like, potentially hampering the economy more than is needed to bring price gains under control. Many forecasters believe growth will slow to just under 2% this year as households feel the strains of high interest rates, record credit card debt and dwindling pandemic-related savings. That would still be a respectable showing, but some experts continue to predict a mild recession.

What is the key interest rate?

In their discussion of current economic conditions, participants noted that recent indicators pointed to modest growth of spending and production. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Participants recognized that Russia’s war against Ukraine was causing tremendous human and economic hardship. The war and related events were contributing to upward pressure on inflation and were weighing on global economic activity. Against this background, participants continued to be highly attentive to inflation risks.

The group is a 12-member group that is the primary committee of the Fed affecting monetary policy. Through its decisions, it sets the Fed’s short-term objective for purchasing and selling securities, which is the target level of the fed funds rate, which influences other interest rates. This statement is based on the FOMC’s commitment to fulfilling a statutory mandate from Congress to promote maximum employment, stable prices, and moderate long-term interest rates. Because monetary policy determines the inflation rate over the long term, the FOMC can specify a longer-run goal for inflation.

The Federal Reserve isn’t declaring victory on achieving a so-called soft landing for the economy, with inflation back at the 2% target rate without a recession. The Federal Reserve on Wednesday released the minutes of the Federal Open Market Committee meeting that was held on July 25-26, 2023. Selection of Committee Officer
By unanimous vote, the Committee selected Richard Ostrander to serve as deputy general counsel, effective December 13, 2022, until the first regularly scheduled meeting of the Committee in 2023. Forecasters expect the economy to grow 1.6% this year, according to a recent survey by Wolters Kluwer Blue Chip Economic Indicators. That kind of growth likely means the Fed will have achieved a coveted “soft landing” by restraining the economy enough to tamp down inflation without triggering a recession. In December, the Fed’s preferred inflation measure – the personal consumption expenditures index – rose 2.6% annually, down from a high of 7% in summer 2022.

Moreover, the staff assumed a slower pace of decline in the natural rate of unemployment over the near term in response to recent estimates suggesting that job-matching efficiency was not improving as fast as previously anticipated. With all these changes, output was expected to move below the staff’s estimate of potential near the end of 2024—a year later than in the previous forecast—and to remain below potential in 2025. Likewise, the unemployment rate was expected to move above the staff’s estimate of its natural rate near the end of 2024 and remain above it in 2025. Regarding the outlook for monetary policy, both market- and Desk survey-based measures indicated expectations for the Committee to maintain elevated policy rates through 2023. In the December survey, the median respondent’s modal expectation for the path of the federal funds rate in 2023 shifted higher by 25 basis points relative to the November survey. The survey-based estimate of the expected policy path in 2024 continued to suggest a decline in the target range for the federal funds rate over 2024, little changed from the path anticipated in the November survey.

The Federal Reserve possesses the tools necessary to increase or decrease the money supply. This is done through OMOs, adjusting the discount rate, and setting bank reserve requirements. The Fed’s Board of Governors is in charge of setting the discount rate and reserve requirements, while the FOMC is specifically in charge of OMOs, which entails buying and selling government securities. For example, to tighten the money supply and decrease the amount of money available in the banking system, the Fed would offer government securities for sale.

With regard to the business sector, participants noted that growth in investment spending appeared modest and was being restrained by high borrowing costs and an outlook for slow growth of final demand, although views on investment prospects varied across businesses and Districts. Based on discussions with District contacts as well as a survey of firms’ chief financial officers, some participants commented that while businesses were generally optimistic about their own prospects, they expressed increasing concern about the general economic outlook for 2023. Participants noted signs of continued easing in supply bottlenecks, with a couple citing District contacts’ reports of declines in shipping costs and delivery times.

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