Fed Minutes Could Detail Views on Weak Inflation, Next Rate Rise

The Federal Reserve on Sept. 20, after a two-day policy meeting, left interest rates unchanged, penciled in one more rate increase this year, and said it would start the yearslong process of shrinking its $4.5 trillion portfolio of bonds and other assets. The central bank also issued a statement suggesting officials were still grappling with weak inflation readings and trying to assess how those might affect future policy. Here are five things to watch for in the minutes from the meeting, set to be released at 2 p.m. EDT Wednesday.

Inflation Arguments

Minutes of the Fed's July meeting, released in August, revealed a debate among officials over inflation's stubborn refusal to rise to their 2% target despite a growing economy and booming job market. Officials debated possible explanations but reached no conclusion. In a Sept. 26 speech, Chairwoman Janet Yellen admitted economists were stumped. The minutes from the September meeting could provide more details of the internal discussion.

Will 2017 See a Third Rate Increase?

Closely related to the inflation mystery is the question of whether the Fed will raise rates again this year. Economic projections released after the September meeting showed officials still anticipated another rate increase, which would be the third this year, but weak inflation could undercut support for another move. Some officials, such as Chicago Fed President Charles Evans, have said they want to see faster inflation before supporting another rate rise. But how much improvement would be enough? The minutes could offer a clue.

Unwinding Starts Not With a Bang, but a Whimper

In September, the Fed said it would begin reducing this month its portfolio of bonds purchased during three rounds of quantitative easing. The news stirred no noticeable market reaction. Were officials really as sanguine about the move behind closed doors as they appeared in public? Did anybody harbor any lingering worries? Did officials discuss a contingency plan in case the great unwinding got bumpy? The minutes could tell us.

Where to End Up

In June, six Fed officials thought the Fed's stable long-term interest rate -- and by implication the level at which they would stop raising rates -- was shy of 3%, according to projections released after their policy meeting. In September, they had been joined by three more. The median of officials' projections dropped to 2.8% in September from 3% earlier as a result. That means officials don't anticipate raising rates as much as they did before. Likewise, if they were to stop at that point, they would have less room to cut rates in the event of a downturn. Ms. Yellen, in her September postmeeting press conference, didn't much discuss the change in outlook, but the minutes could offer some detail on officials' thinking.

Hurricane Effects

The Fed's September statement included an unusual reference to hurricanes Harvey, Irma and Maria, which hit the Southeast U.S. and Puerto Rico particularly hard. The statement said the hurricanes likely would have a short-term effect on economic data but that the impact would fade over time. The minutes could tell us how much of an impact officials are expecting and how they plan to adjust for short-term changes in economic data in their policy-making.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

October 11, 2017 05:14 ET (09:14 GMT)