The Federal Open Market Committee (FOMC) will release the minutes of its Oct. 29 meeting on Wednesday. The minutes could elaborate on the perceived dovish bias from the Fed, give some details from the intermeeting cut eight days before, and highlight any debate between members on whether cutting rates 50 basis points to 1% was the best action.
David Sloan, senior economist at 4Cast, said he doesn't expect to see any major revelations in the minutes, but there will be an updated economic forecast from the Fed. Those updates occur four times per year, and the conditions warrant significant downward revisions, Sloan said.
He also said it's possible that the minutes could discuss how far traditional monetary policy could go as well. The target rate is now at 1%, a rate historically considered the floor, yet most central bank watchers expect the Fed to cut that rate an additional 50 basis points by the end of the year.
Often, analysts will read the minutes to understand why dissenting votes were cast and whether particular members carried much influence, but the last meeting was the second unanimous call in a row.
Sloan said the meeting could show if there were differing views heading into the meeting, but he considers that unlikely given that there were no dissenting votes from the globally co-ordinated rate cut on Oct. 8.
At the Oct. 29 meeting, the 10 members released a statement widely seen as showing a dovish bias, as falling commodity prices allowed the Fed to focus on the mandate to support economic growth. The statement appeared to signal further rate cuts as well.
Recent policy actions should "help over time to improve credit conditions and promote a return to moderate economic growth," the statement read, adding that the Fed would "monitor economic and financial developments carefully" and take further action if necessary.
On prices, the Committee said it expected inflation "to moderate in coming quarters to levels consistent with price stability," a sentiment that appears to be confirmed in the PPI report on Tuesday.
Testifying before the House Financial Services Committee on Tuesday, Fed chairman Ben Bernanke said there are some signs that credit markets are improving, but that conditions are "still far from normal" and that it is "critical" to market confidence that TARP funds are used to purchase equity from financial firms.
"The ongoing capital injections under the TARP are continuing to bring stability to the banking system and have reduced some of the pressure on banks to deleverage, two critical first steps towards restarting flows of new credit," the Fed chairman said.
Speaking late in the afternoon with Market News International, Minneapolis Fed President Gary Stern - one of the more hawkish members on the FOMC - said he is not "unalterably opposed" to lower rates. He acknowledged that inflation risks have diminished while growth potential has diminished, predicting that unemployment may rise to 7.5% or higher.
Since September 2007, the Federal Reserve has cut the target interest rate by 425 basis points, from 5.25% to 1.00%.
As of Tuesday afternoon, the implied market probability of a 50 basis point cut at the Dec. 16 meeting is 90%.
By Patrick McGee and edited by Stephen Huebl
©CEP News Ltd. 2008