FOMC Minutes Express Awareness of Rising Rate Risks, Dependence on Economic Data
As expected, the Minutes from the most recent FOMC Meeting contained no major surprises. Here are some highlights that confirm or expand on what we thought we already knew about how the Fed is thinking, and at least one pleasant surprise:
"purchases of longer-term assets did not appear to have had an adverse effect on the functioning of the markets for Treasury securities or agency mortgage-backed securities (MBS)"
"Improvements in housing-sector activity appeared to slow, possibly reflecting the rise in mortgage rates since the spring. "
"While the housing sector continued to strengthen, supported by improving fundamentals and gains in house prices, the increases in mortgage rates since the spring were seen as a potential risk. The extent to which the higher mortgage rates had materially affected that sector remained unclear, with the exception of the sharp decline in refinancing activity. But it was noted that recent softness in housing starts and home sales might well reflect some restraint from those higher rates. " (this is the pleasant surprise. It's nothing major, but a clearly delineated assessment of risks associated with rising rates).
"They expressed concerns that tighter financial conditions might weigh on the recovery in the housing sector. A few others observed that the increase in longer-term yields in recent months had not seemed to leave a meaningful imprint on other asset prices, suggesting that the effects on the economy were likely to be relatively muted." (this is an important division within the Fed. This is why we so badly need to see MORE ECONOMIC DATA).
" In addition to updating its description of the state of the economy, the Committee decided to underline its concern about the tightening of financial conditions observed in recent months. It also acknowledged the improvement in economic activity and labor market conditions since its asset purchase program began, while emphasizing that it was prepared to be patient and await more evidence that progress would be sustained before adjusting downward the pace of purchases. " (just another instance of the Fed being "aware" of the rising rate problem.
"In judging when to moderate the pace of asset purchases at its coming meetings, it would assess whether incoming information continued to support its expectation of ongoing improvement in labor market conditions." (in other words, "it depends on the data!" The conclusion is the same: more data please!).