November FOMC minutes: Rate setting committees position was to proceed carefully

<p>Participants’ Views on Current Conditions and the
Economic Outlook</p><p><br></p><ul><li>Rate setting committee's position was to proceed carefully</li><li>all participants agreed policy decisions at every meeting would continue to be based on totality of incoming information</li><li>all participants judged it appropriate to maintain target interest rate at 5.25% – 5.5%</li><li>Real GDP expanded strongly in Q3, driven by a surge in consumer spending.</li><li>Despite robust growth, participants see aggregate demand and supply coming into better balance due to restrictive monetary policy and normalizing supply conditions.</li><li>Labor market remains tight but has eased, partly due to recent increases in labor supply.</li><li>Current monetary policy is restrictive, putting downward pressure on economic activity and inflation.</li><li>Financial conditions have significantly tightened in recent months.</li><li>Inflation has moderated over the past year but remains high and above the 2% goal.</li><li>A period of below-potential GDP growth and further softening in labor market conditions is likely needed to bring inflation down.</li><li>Consumer spending data has been stronger than expected, likely due to a strong labor market and solid household balance sheets.</li><li>Some participants noted financial pressures on low- and moderate-income households due to high prices and tight credit conditions.</li><li>Several participants observed rising delinquencies on auto loans and credit cards among these households.</li><li>Some participants reported a weaker consumer demand picture than indicated by aggregate data.</li><li>Several participants suggested that repeated upside surprises in spending data could indicate sustainable momentum.</li><li>A couple of participants theorized that households might have more financial resources than previously thought.</li><li>A few participants noted that housing sector activity has flattened, likely due to rising mortgage rates.</li><li>Business fixed investment was flat in Q3, with conditions varying across industries and Districts.</li><li>Some participants noted benefits for businesses from improved hiring ability, supply chains, and reduced input costs.</li><li>A few participants reported difficulties for businesses in passing on cost increases to customers.</li><li>Several participants commented on the resolution of the United Auto Workers strike reducing business-sector uncertainty.</li><li>Several participants noted the impact of higher interest rates on businesses, with firms cutting or delaying investment plans.</li><li>A few participants highlighted challenges for small businesses due to tighter financial and credit conditions.</li><li>A few participants mentioned the impact of higher interest rates on the agricultural sector.</li><li>The labor market remains tight, with strong payroll growth and a low unemployment rate.</li><li>Labor supply and demand are coming into better balance, with labor force participation rising, especially among women, and immigration boosting labor supply.</li><li>A few participants expressed concern over the sustainability of increased labor supply.</li><li>Various measures indicate some easing in labor demand, including lower job openings and quits rates.</li><li>The pace of nominal wage increases has continued to moderate.</li><li>A few participants noted that nominal wages are still rising at rates inconsistent with the 2% inflation objective.</li><li>Inflation has moderated, with core PCE price inflation measures declining.</li><li>Participants noted limited progress in reducing core services inflation excluding housing.</li><li>Longer-term inflation expectations remain well anchored.</li><li>Inflation remains well above the 2% objective, continuing to harm businesses and households.</li><li>Financial conditions have tightened due to a substantial increase in longer-term Treasury yields.</li><li>Many participants observed that the rise in longer-term yields was driven by an increase in term premiums on Treasury securities.</li><li>Some participants suggested the rise in yields might also reflect expectations for a higher federal funds rate path.</li><li>Participants generally noted high uncertainty in the economic outlook.</li><li>Upside risks to economic activity include the persistence of factors behind strong spending.</li><li>Downside risks include larger-than-expected effects of policy tightening and tighter financial conditions.</li><li>Upside risks to inflation include the possibility of stalled disinflation or reacceleration of inflation.</li><li>Downside risks to economic activity include potential disruptions to global oil markets.</li><li>Participants generally agreed that the stance of monetary policy should remain restrictive to reduce inflation.</li><li>All participants judged it appropriate to maintain the federal funds rate at 5¼ to 5½ percent.</li><li>Further tightening of monetary policy may be needed if progress toward the inflation objective is insufficient.</li><li>Participants stressed the importance of clear communication about their data-dependent approach.</li><li>All participants agreed that policy should remain restrictive until inflation is sustainably moving toward the objective.</li><li>Several participants commented on the recent decline in the use of the ON RRP facility.</li><li>Participants discussed risk-management considerations, noting more balanced risks to achieving the Committee's goals.</li><li>Most participants continued to see upside risks to inflation.</li><li>Many participants noted downside risks to economic activity, including potential effects on aggregate demand and the CRE sector.</li></ul><p>Parsing and organizing according to the degree of consensus:</p><p><strong>All Participants:</strong></p><ul><li>Agreed that monetary policy should remain restrictive until inflation sustainably moves towards the Committee's objective.</li><li>Judged maintaining the federal funds rate at 5¼ to 5½ percent as appropriate.</li><li>Agreed on the necessity of reducing the Federal Reserve’s securities holdings.</li><li>Agreed that every policy decision should be based on incoming information and its implications for the economic outlook and risk balance.</li></ul><p><strong>Most Participants:</strong></p><ul><li>Continued to see upside risks to inflation, including potential prolonged imbalances in aggregate demand and supply.</li></ul><p><strong>Many Participants:</strong></p><ul><li>Commented on the significant tightening of financial conditions due to higher long-term yields.</li><li>Observed the contribution of term premiums to the rise in longer-term Treasury yields.</li><li>Noted downside risks to economic activity, including larger-than-expected effects of tightening financial and credit conditions.</li></ul><p><strong>Several Participants:</strong></p><ul><li>Noted potential cyber risks and the importance of readiness for such threats.</li><li>Commented on the recent decline in the use of the ON RRP facility.</li><li>Emphasized the importance of banks being prepared to use Federal Reserve liquidity facilities.</li></ul><p><strong>Some Participants:</strong></p><ul><li>Noted benefits for businesses from improved hiring ability, supply chains, and reduced input costs.</li><li>Reported difficulties for businesses in passing on cost increases to customers.</li><li>Expressed concern over the sustainability of increased labor supply.</li><li>Highlighted challenges for small businesses due to tighter financial and credit conditions.</li></ul><p><strong>A Few Participants:</strong></p><ul><li>Noted nominal wages still rising at rates above those consistent with the 2% inflation objective.</li><li>Expressed concern over the recent pace of increases in labor supply.</li><li>Discussed the importance of monitoring Treasury market functioning and hedge fund leverage.</li><li>Observed that the process of balance sheet runoff could continue even after reducing the federal funds rate target range.</li></ul><p>SUMMARY:</p><p>The full report can be found <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20231101.pdf" target="_blank" rel="nofollow">HERE</a>. Overall, the meeting minutes are a&nbsp;compilation of different views in what is&nbsp;considered an&nbsp;economy that continues to grow with above-the-norm&nbsp;inflation and strong employment. Having said that there is a lot of uncertainty given the sharp rise in rates over the last couple of years. As a result, there&nbsp;will be a little bit of something for everyone.&nbsp;Nevertheless the commentary is a bit more dovish than what most expected especially before the CPI and jobs reports.</p>

This article was written by Greg Michalowski at www.forexlive.com.