Fed Minutes May Offer Clues on Start of Portfolio Wind-Down, Rate Rise Plans

By David Harrison and Kate DavidsonFeaturesDow Jones Newswires

The Federal Reserve left interest rates unchanged after its July 25-26 meeting and indicated it could begin shrinking its bond portfolio as soon as September. Officials in recent weeks also have been grappling with issues such as weak inflation, the prospects for future rate increases and uncertainty about fiscal policy -- all topics that might have been discussed at the meeting. If so, the Fed could provide new detail about those conversations in the minutes of the meeting, to be released at 2 p.m. EDT Wednesday. Here are five things to watch for in the minutes.

Portfolio Pointers

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In their statement released after the July meeting, officials said they planned to begin the process of reducing the Fed's $4.5 trillion portfolio of bonds and other assets "relatively soon," suggesting they could launch the process at their Sept. 19-20 meeting. Look for a more definitive signal on the timing of the kickoff.

Inflation Questions

Minutes of the Fed's June 13-14 meeting revealed a robust internal debate over inflation, with some arguing that recent weakness was merely a temporary phenomenon and others warning that soft price pressures could be a signal of underlying weakness in the economy. By the July meeting, inflation data was still soft. It's likely we'll see more discussion about inflation and potential policy impacts in the minutes coming Wednesday.

Another Rate Increase?

In June, Fed officials penciled in a third rate increase this year. But in recent weeks, some have indicated they likely wouldn't support another such move unless inflation picks up. Besides the usual "dovish" members, who traditionally support holding rates low, those signals are now coming from centrists such as Dallas Fed President Robert Kaplan and Philadelphia Fed President Patrick Harker. Look to the minutes for hints about a potential reassessment about their rate plans.

Whither the Dollar?

Fed officials tend to talk about the dollar very carefully, lest they give the impression they are trying to influence its value. But the value of the currency is a crucial factor for policy-making. By late July, the dollar's slide was well under way, a development that could benefit U.S. exporters while raising import prices. Did officials discuss how the greenback's decline might affect inflation, economic growth and policy in the months ahead? The minutes could tell us.

The Debt Limit, Again

The government is fast approaching the date by which it may run out of money to pay its bill unless Congress raises the federal borrowing limit. As the government's fiscal agent, the Fed plays a key role in processing those payments, which could be delayed if lawmakers don't raise the debt limit in time. The Treasury Department has said the government has enough money to pay its bills on time through September. Fed officials held emergency meetings in August 2011 and October 2013 ahead of looming debt limit showdowns those years to discuss their options in the event of a debt limit breach. The minutes could show whether, and to what extent, officials are starting to worry about such a scenario this time around.

Write to David Harrison at david.harrison@wsj.com and Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

August 15, 2017 13:52 ET (17:52 GMT)