The minutes from the Federal Reserve’s monetary policy setting committee, the Federal Open Market Committee (FOMC), October meeting reveal both confidence and caution on the part of policy makers. Meeting participants expressed a range of views regarding confidence in the accumulated progress in economic activity, labor market improvements, and the transitory nature of downward pressure on inflation from declining energy prices and non-energy import prices. They also shared cautious views about the unexpected slowdown in payroll employment growth in August and September, caution about the limited ability of monetary policy to address unanticipated shocks to the economy, and cautiously optimistic views about a limited negative impact of global economic conditions on the domestic economy.
The statement released immediately following the October meeting included new language shifting the focus of communication from how long to wait to raise rates, to whether or not to raise rates at the next meeting (FOMC). But rather than tipping their hand, the minutes show participants revisiting most of the same recent arguments both for and against raising rates at the December meeting, and retreating to discussing appropriately communicating to the public the greater importance of the path of subsequent rate increases, which is anticipated to be gradual, compared to the specific time of liftoff.
Payroll employment rebounded in October, expanding by 271 thousand, the prior two months were revised upward, and the unemployment rate declined to 5.0%, but some deeper details in the employment report are open to interpretation (payrolls). The employment report for November (due out December 4) may be the single most important predictor of liftoff at the December meeting. A strong report makes the August and September weakness the outliers, a soft report makes October the outlier in a discouraging weakening trend.
The minutes show no decision has been made regarding the December meeting, and any decision will be based on incoming data. The employment report for November will be a pretty good clue.