We’re expecting a bit of controversy from the FOMC minutes due tomorrow. These minutes are from the meeting held back in mid-September.
The markets were taken a bit by surprise with dissent following the policy decision. And now we get to have a closer look as to why.
One of the key things analysts will be interested in is how much of dissent there was. Especially in regards to the new guidance on interest rates.
Two members voted against the initiative, and there is speculation that more members are doubtful.
Interestingly, there is an increased focus on non-voting members, who will rotate into voting positions in a matter of months (when the new inflation target has a more practical effect).
There is speculation that the non-voters could increase the proportion of Fed presidents who are at least not comfortable with the new policy, if not outright opposed to it.
The Implications for the Markets
The major takeaway from last month’s FOMC meeting was the “average inflation target”.
Because it effectively would allow the Fed to keep easing even as inflation increased above the 2% target, the measure is broadly interpreted as dovish.
Consequently, if the minutes show more than two members dissented or have misgivings about the policy, the market would likely interpret that as hawkish. It could contribute to dollar strength and weakness in the stock market – but not a lot.
The key element here is that the inflation target manages expectations of interest rates relatively long into the future.
It doesn’t have a direct impact on the cost of borrowing now, such as margin costs to invest in the stock market. But something long term, like the mortgage rate could be affected, as lenders price in potentially higher than previously anticipated rates in the future.
What is also worth paying attention to is any views from Minneapolis President Neel Kashkari. He voted against the policy.
Why he, in particular, is noteworthy is that he’s famously dovish. In fact, he’s perhaps the most dovish voting member of the FOMC at the moment.
If dovish members have a problem with a dovish policy… it might not have all that much staying potential.
Analysts will be keen to see his reasoning. Therefore, the commentary coming across the wires might move the markets.
The September meeting also included the quarterly SEP report. This provides a framework for expectations.
While we got the summary following the last meeting, we’d get more detail on how the Fed sees inflation evolving over time.
The keynote is where/when they expect inflation to return to the 2% threshold. We’ll also want to see if there are any comments on what will happen after that.
The common comment from the Fed has been “not even thinking about raising rates”… well, there are signs that they might be starting to think.