Today, we will be discussing the "Minutes of the Federal Open Market Committee December 13-14, 2022."
Quick Summary for Those in a Hurry
The main takeaway is that the FOMC is taking actions to maintain stability in financial markets and support economic growth by keeping the federal funds rate within a certain range and managing the supply of reserves in the banking system. The FOMC expects economic activity to expand at a pace below its trend growth rate in 2023, and notes that recent economic indicators showed modest growth in spending and production, but strong job gains and low unemployment. However, the FOMC also notes that inflation remains elevated due to various factors and is above the Committee's goal of 2%. There is considerable uncertainty around the consumer spending outlook, and the FOMC expects housing activity to remain weak. Investment spending has appeared modest and is being restrained by high borrowing costs and slow growth in final demand. The FOMC also discusses a number of other issues, including international economic developments, the energy and agricultural sectors, and the labor market.
Overall, the FOMC's outlook for the economy is mixed. While there have been some positive developments, such as strong job gains and low unemployment, there are also ongoing concerns about inflation, slow growth, and imbalances in the labor market.
Committee Policy Action
The Federal Open Market Committee (FOMC) has directed the Desk to take certain actions starting on December 15, 2022 in order to maintain the target range for the federal funds rate at 4¼ to 4½ percent.
These actions include conducting open market operations as needed, conducting overnight repurchase agreements with a minimum bid rate of 4.5 percent and an aggregate operation limit of $500 billion, conducting overnight reverse repurchase agreements at an offering rate of 4.3 percent with a per-counterparty limit of $160 billion per day, rolling over principal payments from the Federal Reserve's holdings of Treasury securities at a monthly cap of $60 billion, reinvesting principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) at a monthly cap of $35 billion, and engaging in dollar roll and coupon swap transactions to facilitate the settlement of agency MBS transactions.
The stated amounts for reinvestments may be allowed to deviate modestly if necessary for operational reasons.
FOMC OUTLOOK
FOMC noted that recent economic indicators showed modest growth in spending and production, but strong job gains and low unemployment. This is generally seen as a positive development, as a healthy labor market is crucial for overall economic health.
However, the FOMC also noted that inflation remained elevated due to a variety of factors, including supply and demand imbalances, higher food and energy prices, and broader price pressures. This is a concern because high inflation can erode purchasing power and make it more difficult for households and businesses to plan for the future.
Looking ahead, the FOMC expects economic activity to expand at a pace below its trend growth rate in 2023. This suggests that the economy may not be as strong as it has been in recent years, but it is also seen as a positive sign that the FOMC expects growth to return over time.
In terms of consumer spending, the FOMC reported that it has shown stronger growth in recent months, likely supported by a strong labor market and households running down excess savings.
However, there is considerable uncertainty around the consumer spending outlook, and the FOMC expects housing activity to remain weak.
In terms of investment spending, the FOMC noted that it has appeared modest and is being restrained by high borrowing costs and an outlook for the slow growth of final demand. This is a concern because investment is an important driver of long-term economic growth.
The FOMC also discussed a number of other issues, including international economic developments, the energy and agricultural sectors, and the labor market. In particular, the FOMC noted that the labor market has remained very tight, with an unemployment rate near a historically low level, robust payroll gains, and a high level of job vacancies. However, there are also signs that labor market imbalances may be improving, including declines in job openings and quits and reports of more qualified job applicants for open positions.
Despite these positive developments, the FOMC noted that there is still a large imbalance between labor supply and demand, as indicated by the still-large number of job openings and elevated nominal wage growth. This suggests that the labor market may not be as strong as it appears on the surface.
In terms of inflation, the FOMC noted that it is unacceptably high, at above the Committee's goal of 2%. While there have been welcome reductions in the monthly pace of price increases, the FOMC believes that more evidence is needed to be confident that inflation is on a sustained downward path. Some measures show that firms' markups are still elevated, and a continued subdued expansion in aggregate demand may be needed to reduce the remaining upward pressure on inflation.
The FOMC believes that the appropriate stance of monetary policy is accommodative in order to support the recovery and return inflation to its goal over time…..
Overall, the FOMC's outlook for the economy is mixed. While there have been some positive developments, such as strong job gains and low unemployment, there are also ongoing concerns about inflation, slow growth, and imbalances in the labor market.
Bullish factors to consider may include:
The FOMC is taking action to maintain stability in financial markets and support economic growth.
Recent economic indicators showed modest growth in spending and production, as well as strong job gains and low unemployment.
The FOMC expects economic activity to expand at a pace below its trend growth rate in 2023, indicating that growth is expected to return over time.
Consumer spending has shown stronger growth in recent months, potentially supported by a strong labor market and households running down excess savings.
The labor market has remained very tight, with an unemployment rate near a historically low level, robust payroll gains, and a high level of job vacancies. There are also signs that labor market imbalances may be improving.
Some potential bearish factors to consider may include:
Inflation remains elevated due to various factors and is above the FOMC's goal of 2%.
There is considerable uncertainty around the consumer spending outlook and the FOMC expects housing activity to remain weak.
Investment spending has been modest and is being restrained by high borrowing costs and slow growth in final demand.
There is still a large imbalance between labor supply and demand, as indicated by the still-large number of job openings and elevated nominal wage growth.
Congratulations on sticking around! Your curiosity is admirable. Now, let's dive into the data
Key data points from Review of the Economic Situation
GDP is growing at a modest pace in Q4 2022 after strong growth in Q3
Labor market conditions eased slightly in October and November but remain tight
Consumer price inflation declined in October but remains elevated
The unemployment rate increased to 3.7% in October and remained unchanged in November
Nominal wage growth is elevated and above the pace considered consistent with the Federal Open Market Committee's (FOMC) 2% inflation target
Average hourly earnings increased 5.1% over the 12 months ending in November
CPI inflation dropped to 7.1% in November and core CPI inflation dropped to 6.0%
The inflation expectations index edged down in Q4 but remains above pre-pandemic levels
Real PCE growth appears to have picked up in Q4 after moderate expansion in Q3
Residential investment looks to be contracting sharply, while growth in business fixed investment is slowing
Manufacturing production increased modestly in October, with a decline expected in November
U.S. international trade deficit widened in October
Foreign economic activity grew at a moderate pace in Q3, but more recent data suggests weakening growth
High inflation and energy supply disruptions are depressing economic activity, particularly in Europe
China's authorities began easing social restrictions as COVID cases surge, potentially disrupting economic activity in the short term but also enabling a faster reopening
Weaker global demand and high-interest rates are weighing on activity in emerging market economies
Core inflationary pressures remain elevated in many countries, leading to further tightening of monetary policy by central banks
Treasury yields and measures of inflation compensation declined
The implied path of the federal funds rate in 2023 ended modestly lower
Stock market indexes rose, likely reflecting reduced concerns about the inflation outlook
Market volatility declined notably
Credit flows moderated a bit in recent months, and the credit quality of businesses and most households remained solid
Inflation compensation measures based on inflation swaps declined notably, especially for shorter maturities
Credit availability to small businesses appeared to have tightened further this fall, with the share of small firms reporting that it was more difficult to obtain credit than three months earlier trending up through November
Credit availability for households with lower credit scores was considerably tighter at levels comparable with what prevailed before the pandemic
The number of home purchases and refinance mortgage rate locks edged lower at subdued levels despite recent declines in mortgage interest rates
Consumer credit remained available for most consumers through September, with auto loans and credit card debt growing at a robust pace
The credit quality of nonfinancial corporations remained solid
The volume of speculative-grade corporate bond downgrades slightly exceeded upgrades in October and November
Leveraged loans experienced net downgrades in October, but the pace of net downgrades slowed substantially in recent weeks
Default rates on corporate bonds and leveraged loans remained at very low levels
Measures of expected default probabilities for corporate bonds and leveraged loans had increased from their levels at the beginning of the year in recent months
The credit quality of municipalities remained robust amid strong revenues at state and local governments
Key Data Points - Outlook
FOMC submitted projections for real GDP growth, unemployment rate, and inflation for the next few years
Recent economic indicators showed modest growth in spending and production, but strong job gains and low unemployment
Inflation remained elevated due to supply and demand imbalances, higher food and energy prices, and broader price pressures
Economic activity slowed significantly in 2022 and was expected to expand in 2023 at a pace below its trend growth rate
A sustained period of below-trend real GDP growth was expected to bring supply and demand into balance and reduce inflationary pressures
Consumer spending showed stronger growth in September and October, likely supported by a strong labor market and households running down excess savings
There was considerable uncertainty around the consumer spending outlook, and housing activity was expected to remain weak
Growth in investment spending appeared modest and was being restrained by high borrowing costs and an outlook for slow growth of final demand
International economic developments and monetary policy were also discussed.
FOMC discussed developments in the energy and agricultural sectors
Risks of severe disruption from the European Union's embargo and the Group of Seven's price cap on Russian oil exports have diminished
High costs for inputs such as diesel, feed, and fertilizer are causing challenges for the agricultural sector
The labor market has remained very tight, with:
Unemployment rate near a historically low level
Robust payroll gains
High level of job vacancies
Elevated nominal wage growth
There are tentative signs that labor market imbalances are improving, including:
Declines in job openings and quits over the second half of 2022
Reports of more qualified job applicants for open positions
Despite this, there is still a large imbalance between labor supply and demand, as indicated by:
Still-large number of job openings
Elevated nominal wage growth
Labor demand has remained strong despite a slowdown in economic growth
Some business contacts reportedly keen to retain workers even in the face of slowing demand for output due to recent experiences with labor shortages and hiring challenges
Labor supply appears to be constrained by structural factors such as:
Early retirements
Reduced availability or increased cost of childcare
More costly transportation
Reduced immigration
Inflation is unacceptably high, at above the Committee's goal of 2%
There are welcome reductions in the monthly pace of price increases, but more evidence is needed to be confident that inflation is on a sustained downward path
Core goods prices declined in October and November, consistent with easing supply bottlenecks
Some measures show that firms' markups are still elevated, and a continued subdued expansion in aggregate demand may be needed to reduce remaining upward pressure on inflation
Measures of rent based on new leases are indicating a deceleration in the housing market
The pace of increase for prices of core services excluding shelter is high
Some participants noted that the appreciation of the dollar could be contributing to the recent slowing of inflation
Participants agreed that the appropriate stance of monetary policy is accommodative to support the recovery and return inflation to the Committee's goal over time
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Key Takeaways from FOMC Meeting Minutes
Key Takeaways from FOMC Meeting Minutes
Key Takeaways from FOMC Meeting Minutes
Hey guys,
Today, we will be discussing the "Minutes of the Federal Open Market Committee December 13-14, 2022."
Quick Summary for Those in a Hurry
The main takeaway is that the FOMC is taking actions to maintain stability in financial markets and support economic growth by keeping the federal funds rate within a certain range and managing the supply of reserves in the banking system. The FOMC expects economic activity to expand at a pace below its trend growth rate in 2023, and notes that recent economic indicators showed modest growth in spending and production, but strong job gains and low unemployment. However, the FOMC also notes that inflation remains elevated due to various factors and is above the Committee's goal of 2%. There is considerable uncertainty around the consumer spending outlook, and the FOMC expects housing activity to remain weak. Investment spending has appeared modest and is being restrained by high borrowing costs and slow growth in final demand. The FOMC also discusses a number of other issues, including international economic developments, the energy and agricultural sectors, and the labor market.
Overall, the FOMC's outlook for the economy is mixed. While there have been some positive developments, such as strong job gains and low unemployment, there are also ongoing concerns about inflation, slow growth, and imbalances in the labor market.
Committee Policy Action
The Federal Open Market Committee (FOMC) has directed the Desk to take certain actions starting on December 15, 2022 in order to maintain the target range for the federal funds rate at 4¼ to 4½ percent.
These actions include conducting open market operations as needed, conducting overnight repurchase agreements with a minimum bid rate of 4.5 percent and an aggregate operation limit of $500 billion, conducting overnight reverse repurchase agreements at an offering rate of 4.3 percent with a per-counterparty limit of $160 billion per day, rolling over principal payments from the Federal Reserve's holdings of Treasury securities at a monthly cap of $60 billion, reinvesting principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) at a monthly cap of $35 billion, and engaging in dollar roll and coupon swap transactions to facilitate the settlement of agency MBS transactions.
The stated amounts for reinvestments may be allowed to deviate modestly if necessary for operational reasons.
FOMC OUTLOOK
FOMC noted that recent economic indicators showed modest growth in spending and production, but strong job gains and low unemployment. This is generally seen as a positive development, as a healthy labor market is crucial for overall economic health.
However, the FOMC also noted that inflation remained elevated due to a variety of factors, including supply and demand imbalances, higher food and energy prices, and broader price pressures. This is a concern because high inflation can erode purchasing power and make it more difficult for households and businesses to plan for the future.
Looking ahead, the FOMC expects economic activity to expand at a pace below its trend growth rate in 2023. This suggests that the economy may not be as strong as it has been in recent years, but it is also seen as a positive sign that the FOMC expects growth to return over time.
In terms of consumer spending, the FOMC reported that it has shown stronger growth in recent months, likely supported by a strong labor market and households running down excess savings.
However, there is considerable uncertainty around the consumer spending outlook, and the FOMC expects housing activity to remain weak.
In terms of investment spending, the FOMC noted that it has appeared modest and is being restrained by high borrowing costs and an outlook for the slow growth of final demand. This is a concern because investment is an important driver of long-term economic growth.
The FOMC also discussed a number of other issues, including international economic developments, the energy and agricultural sectors, and the labor market. In particular, the FOMC noted that the labor market has remained very tight, with an unemployment rate near a historically low level, robust payroll gains, and a high level of job vacancies. However, there are also signs that labor market imbalances may be improving, including declines in job openings and quits and reports of more qualified job applicants for open positions.
Despite these positive developments, the FOMC noted that there is still a large imbalance between labor supply and demand, as indicated by the still-large number of job openings and elevated nominal wage growth. This suggests that the labor market may not be as strong as it appears on the surface.
In terms of inflation, the FOMC noted that it is unacceptably high, at above the Committee's goal of 2%. While there have been welcome reductions in the monthly pace of price increases, the FOMC believes that more evidence is needed to be confident that inflation is on a sustained downward path. Some measures show that firms' markups are still elevated, and a continued subdued expansion in aggregate demand may be needed to reduce the remaining upward pressure on inflation.
The FOMC believes that the appropriate stance of monetary policy is accommodative in order to support the recovery and return inflation to its goal over time…..
Overall, the FOMC's outlook for the economy is mixed. While there have been some positive developments, such as strong job gains and low unemployment, there are also ongoing concerns about inflation, slow growth, and imbalances in the labor market.
Bullish factors to consider may include:
The FOMC is taking action to maintain stability in financial markets and support economic growth.
Recent economic indicators showed modest growth in spending and production, as well as strong job gains and low unemployment.
The FOMC expects economic activity to expand at a pace below its trend growth rate in 2023, indicating that growth is expected to return over time.
Consumer spending has shown stronger growth in recent months, potentially supported by a strong labor market and households running down excess savings.
The labor market has remained very tight, with an unemployment rate near a historically low level, robust payroll gains, and a high level of job vacancies. There are also signs that labor market imbalances may be improving.
Some potential bearish factors to consider may include:
Inflation remains elevated due to various factors and is above the FOMC's goal of 2%.
There is considerable uncertainty around the consumer spending outlook and the FOMC expects housing activity to remain weak.
Investment spending has been modest and is being restrained by high borrowing costs and slow growth in final demand.
There is still a large imbalance between labor supply and demand, as indicated by the still-large number of job openings and elevated nominal wage growth.
Congratulations on sticking around! Your curiosity is admirable. Now, let's dive into the data
Key data points from Review of the Economic Situation
GDP is growing at a modest pace in Q4 2022 after strong growth in Q3
Labor market conditions eased slightly in October and November but remain tight
Consumer price inflation declined in October but remains elevated
The unemployment rate increased to 3.7% in October and remained unchanged in November
Nominal wage growth is elevated and above the pace considered consistent with the Federal Open Market Committee's (FOMC) 2% inflation target
Average hourly earnings increased 5.1% over the 12 months ending in November
Total PCE price inflation was 6.0% over the 12 months ending in October, while core PCE price inflation was 5.0%
CPI inflation dropped to 7.1% in November and core CPI inflation dropped to 6.0%
The inflation expectations index edged down in Q4 but remains above pre-pandemic levels
Real PCE growth appears to have picked up in Q4 after moderate expansion in Q3
Residential investment looks to be contracting sharply, while growth in business fixed investment is slowing
Manufacturing production increased modestly in October, with a decline expected in November
U.S. international trade deficit widened in October
Foreign economic activity grew at a moderate pace in Q3, but more recent data suggests weakening growth
High inflation and energy supply disruptions are depressing economic activity, particularly in Europe
China's authorities began easing social restrictions as COVID cases surge, potentially disrupting economic activity in the short term but also enabling a faster reopening
Weaker global demand and high-interest rates are weighing on activity in emerging market economies
Core inflationary pressures remain elevated in many countries, leading to further tightening of monetary policy by central banks
Treasury yields and measures of inflation compensation declined
The implied path of the federal funds rate in 2023 ended modestly lower
Stock market indexes rose, likely reflecting reduced concerns about the inflation outlook
Market volatility declined notably
Credit flows moderated a bit in recent months, and the credit quality of businesses and most households remained solid
Medium-to-longer-term nominal Treasury yields declined substantially
Inflation compensation measures based on inflation swaps declined notably, especially for shorter maturities
Credit availability to small businesses appeared to have tightened further this fall, with the share of small firms reporting that it was more difficult to obtain credit than three months earlier trending up through November
Credit availability for households with lower credit scores was considerably tighter at levels comparable with what prevailed before the pandemic
The number of home purchases and refinance mortgage rate locks edged lower at subdued levels despite recent declines in mortgage interest rates
Consumer credit remained available for most consumers through September, with auto loans and credit card debt growing at a robust pace
The credit quality of nonfinancial corporations remained solid
The volume of speculative-grade corporate bond downgrades slightly exceeded upgrades in October and November
Leveraged loans experienced net downgrades in October, but the pace of net downgrades slowed substantially in recent weeks
Default rates on corporate bonds and leveraged loans remained at very low levels
Measures of expected default probabilities for corporate bonds and leveraged loans had increased from their levels at the beginning of the year in recent months
The credit quality of municipalities remained robust amid strong revenues at state and local governments
Key Data Points - Outlook
FOMC submitted projections for real GDP growth, unemployment rate, and inflation for the next few years
Recent economic indicators showed modest growth in spending and production, but strong job gains and low unemployment
Inflation remained elevated due to supply and demand imbalances, higher food and energy prices, and broader price pressures
Economic activity slowed significantly in 2022 and was expected to expand in 2023 at a pace below its trend growth rate
A sustained period of below-trend real GDP growth was expected to bring supply and demand into balance and reduce inflationary pressures
Consumer spending showed stronger growth in September and October, likely supported by a strong labor market and households running down excess savings
There was considerable uncertainty around the consumer spending outlook, and housing activity was expected to remain weak
Growth in investment spending appeared modest and was being restrained by high borrowing costs and an outlook for slow growth of final demand
International economic developments and monetary policy were also discussed.
FOMC discussed developments in the energy and agricultural sectors
Risks of severe disruption from the European Union's embargo and the Group of Seven's price cap on Russian oil exports have diminished
High costs for inputs such as diesel, feed, and fertilizer are causing challenges for the agricultural sector
The labor market has remained very tight, with:
Unemployment rate near a historically low level
Robust payroll gains
High level of job vacancies
Elevated nominal wage growth
There are tentative signs that labor market imbalances are improving, including:
Declines in job openings and quits over the second half of 2022
Reports of more qualified job applicants for open positions
Despite this, there is still a large imbalance between labor supply and demand, as indicated by:
Still-large number of job openings
Elevated nominal wage growth
Labor demand has remained strong despite a slowdown in economic growth
Some business contacts reportedly keen to retain workers even in the face of slowing demand for output due to recent experiences with labor shortages and hiring challenges
Labor supply appears to be constrained by structural factors such as:
Early retirements
Reduced availability or increased cost of childcare
More costly transportation
Reduced immigration
Inflation is unacceptably high, at above the Committee's goal of 2%
There are welcome reductions in the monthly pace of price increases, but more evidence is needed to be confident that inflation is on a sustained downward path
Core goods prices declined in October and November, consistent with easing supply bottlenecks
Some measures show that firms' markups are still elevated, and a continued subdued expansion in aggregate demand may be needed to reduce remaining upward pressure on inflation
Measures of rent based on new leases are indicating a deceleration in the housing market
The pace of increase for prices of core services excluding shelter is high
Some participants noted that the appreciation of the dollar could be contributing to the recent slowing of inflation
Participants agreed that the appropriate stance of monetary policy is accommodative to support the recovery and return inflation to the Committee's goal over time
If you're interested in staying up-to-date with economical & crypto news, I would really appreciate it if you could consider subscribing.
Also, if you enjoy the content, I would be grateful if you could give it a like or share it with your friends.
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