Fed Minutes to Give Hints on Officials' Mood Ahead of Final Meeting of 2017

By Harriet Torry Features Dow Jones Newswires

The Federal Reserve at its last meeting held short-term interest rates steady but gave a more favorable assessment of the economy. The central bank at 2 p.m. EST Wednesday will release minutes from the Oct. 31-Nov. 1 meeting that should shed more light on officials' views ahead of their final policy gathering of the year in mid-December, when the central bank is expected to raise rates. Here's what to look for:

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Rate Signals?

Fed officials have left their benchmark federal-funds rate unchanged in a range between 1% and 1.25% at their last three meetings. At their Sept. 19-20 policy meeting, they penciled in one more quarter-percentage-point rate rise in 2017, and Dec. 12-13 is now the last scheduled policy meeting of the year.

Fed officials have done little to dissuade high market expectations of a rate increase in December, so they might see no need for the minutes to send a strong signal about the timing of their next move.

The readings on the economy's overall health when officials headed into their last meeting suggested growth remains strong, despite the hurricanes that hit the Gulf Coast in late summer and muddied data readings like the jobs report for October. As a result, the Fed's Nov. 1 policy statement upgraded officials' assessment of recent economic growth to "solid" from September's wording that economic activity was "rising moderately." That might be all the signaling we will get on a December rate rise.

Inflation Questions

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Officials' views on inflation will be crucial to their decision on whether to raise rates in December, as well as for the path of policy in the years ahead.

Minutes from the Fed's September meeting showed that lingering questions over inflation were driving a split among officials. The key question was whether the recent soft patch was due to temporary factors or longer-lasting developments, and that debate likely continued at the Fed's last meeting since the data officials had on hand then hadn't shown a breakout in inflationary pressures.

Fed officials, including Chairwoman Janet Yellen, have expressed puzzlement about the shortfall in inflationary pressures in recent months.

Speaking in New York on Tuesday, Ms. Yellen said she is "keeping an open mind" about inflation since "it may be that there is something more endemic or long-lasting here that we need to pay attention to." Her comment that "my colleagues and I are not certain that it is transitory, and we are monitoring inflation very closely" could be reflected in the minutes.

Brewing Dissent?

While the minutes could show how officials feel about a rate increase in December, recent comments expressing concerns about weak inflation suggest some could consider dissenting if a rate rise is approved then. No one dissented to the Nov. 1 decision to hold rates steady.

The minutes also could cast light on any internal divisions over how the economy is faring. If any participants took issue with the decision to upgrade the statement's description of the economy to "solid," the minutes likely will lay that bare.

The Portfolio

The Fed in October launched its long-anticipated plan to slowly wind down its $4.5 trillion portfolio of mortgage and Treasury securities. Markets have taken the runoff in stride, and Fed officials remarked in the run-up to the last meeting that the drawdown of the so-called balance sheet appeared to be going well from a market perspective. The minutes could show how U.S. central bankers felt about the start to the long-awaited move behind closed doors.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

November 22, 2017 05:44 ET (10:44 GMT)