What they mean for the markets

Minutes of the September FOMC meeting released on Wednesday afternoon reiterated the Fed’s commitment to hike interest rates until inflation hits the official 2% target.

The minutes began with the usual review of economic conditions, noting that the economy is weakening faster than expected in July. This is due to “disappointing productivity growth” and “sluggish” labor force participation. But the word “recession” was not mentioned.

Instead, the discussion shifted to inflation, which FOMC participants viewed as high and well above their longer-term target of 2%.

Of most concern to FOMC participants was the stubbornly high “core” inflation, which excludes food and energy from calculations.

“These participants viewed this development as a potential indication that the shift in household spending from goods to services may have less of an impact on commodity prices than expected, or that supply and labor shortages may be taking longer to resolve,” the FOMC minutes said.

The Fed is sticking to a restrictive monetary policy.

“Given the broad-based and unacceptably high level of inflation, the overlapping news of higher-than-expected inflation and the upside risks to the inflation outlook, participants noted that the targeted shift to a tightening monetary stance in the near term is consistent with risk management considerations,” reads the FOMC protocol.

George Ball, chairman of Houston-based investment firm Sanders Morris Harris, believes Wednesday’s minutes confirm the Fed’s dovish stance.

“The Fed must continue to discuss and implement further rate hikes,” he told the International Business Times in an email. “Otherwise everything that has been done to fight inflation is wasted baggage. While inflation has peaked, the road to 2% inflation will be long, windy and bumpy.”

Wall Street was at a loss as to what to make of the Fed minutes as it scrambled to adopt the September PPI reading released that morning.

Bond prices ended up slightly higher and stock prices slightly lower for the day in anticipation of Thursday morning’s September CPI report.

Ball expects the market to remain negative through mid-November. At this point, he believes, Fed officials will likely begin to signal that a pause in rate hikes is on the horizon sometime in early 2023.

“That will be the tipping point where stocks start going up again,” he said. “While this Fed pivot could mean the economy is in recession, markets are looking about six months ahead and the belief that there will be no more rate hikes after early 2023 will psychologically return the rise of the bull.”

https://www.ibtimes.com.au/fomc-minutes-what-they-mean-markets-1839480?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution What they mean for the markets

Fry Electronics Team

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