The minutes from meetings of the Federal Reserve’s monetary policy setting body, the Federal Open Market Committee (FOMC), traditionally released three weeks after the meeting, provide a closer look at the deliberations, than the brief statement released immediately following the meetings.
The minutes from the March meeting provide deeper insights in two particular areas: the path of the federal funds rate and the reinvestment policy for the Fed’s holdings of Treasury securities and agency MBS, reducing the size of the balance sheet.
With regard to the path of federal funds rate, there was almost unanimous agreement that the objective of maximum employment has been achieved. There was less consensus about whether the inflation target has or would be reached in the near term.
The twelve month change in consumer prices moved up substantially in recent months and is near the 2 percent target, although core inflation (excluding food and energy prices), considered a more stable indicator of coming inflation, has changed little and remains below 2 percent. The divergence divided meeting participants on whether the goal has been reached.
Other participants expressed concern that a sustained period of undershooting the unemployment rate target could result in a sustained period of overshooting the inflation target. In this view a steeper path for the funds rate than that indicated by the median projection (three this year) is warranted.
With regard to reinvestment policy, the minutes provide new information beyond the standard language repeated in the statements: “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way.”
In the minutes: “Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year.”
Timing, alternative approaches and the impact on economic conditions were discussed, with the conclusion: “Nearly all participants agreed that the Committee’s intentions regarding reinvestment policy should be communicated to the public well in advance of an actual change. It was noted that the Committee would continue its deliberations on reinvestment policy during upcoming meetings and would release additional information as it becomes available.”
The jury is still out on inflation, but the process is moving forward, with special emphasis on keeping the public and markets informed.