Economists and traders pay a lot of attention to something that probably doesn’t keep you up at night even if you’ve heard of it: the FOMC Minutes. In English, this is the summary of the discussion among decision-makers on the Federal Reserve Board, known as the Federal Open Market Committee.
What do they discuss? The health of the U.S. economy, the prospects for inflation, and whether interest rates should be raised or lowered. The latter issue, of course, is the reason for all the fuss; traders want to know if rates are going to go up faster than people expect, which might slow down the economy and reduce demand for stocks.
The FOMC has released the minutes from its late January meeting in Washington, DC, and the news was generally upbeat. FOMC members appear to believe that the U.S. economy has reached full employment, and that the core inflation target will be met in a couple of years with no significant concern that it will overshoot that level. You can read the full report here, but some excerpts show how sunny is the forecast among these economic weathermen:
“Participants characterized their business contacts as generally upbeat about the economy; their contacts cited the recent tax cuts and notable improvements in the global economic outlook as positive factors. Manufacturers in a number of Districts had responded to increased orders by boosting production….”
“Businesses in a number of Districts reported plans to further increase investment in coming quarters in order to expand capacity….”
“Many participants reported that labor market conditions were tight in their Districts, evidenced by low unemployment rates, difficulties for employers in filling open positions or retaining workers, or some signs of upward pressure on wages…”
“Business contacts in a few Districts reported that they had begun to have some more ability to raise prices to cover higher input costs.”
Of course, the markets dived at the end of the following day, and one interpretation of the minutes is that the Fed will tighten rates faster and more often than had previously been reported. That would be a negative for stocks, but it’s also pure speculation; all the Fed decision-makers promised was “further gradual tightening,” which is ambiguous enough to fit anybody’s interpretation. The most balanced way to read the minutes is to take the Fed at its word: it sees a healthy local and global economy and a return to wage prosperity unfolding before its eyes. That doesn’t mean the market can’t go down and stay down, but it does suggest that the economic doomsayers don’t have a lot of fans at America’s central bank.
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