FOMC (September) meeting minutes - Something for everyone

The September FOMC meeting minutes released last week did not reveal any important clues to the market participants. In fact, the minutes divided opinions with the markets now mixed. While some focus on the dovish comments from some FOMC members and cite this as a reason for not hiking rates in December, others focus on the hawkish comments.

The FOMC meeting minutes showed that some officials were did not think that further rate hikes were warranted and said that the central bank must assess the low inflation. On the other hand, officials said that there were risks for leaving interest rates unchanged. They cited the tightening labor market and wages which could pose the risk of inflation overshooting the Fed's target.

The Fed Chair Janet Yellen said that although inflation was low, she did not want to wait for a strong uptick in prices before raising rates again. However, other officials disagree with Chicago Fed President Charles Evans saying that he was worried about low inflation expectations.

Fed speak reflects divisions among FOMC members

Last week, a number of FOMC members continued to speak. The Kansas City Fed President Esther George said that further but gradual rate hikes were required. She said that with the economy growing at an above trend rate and unemployment reaching historic lows, leaving interest rates unchanged could pose a risk to financial stability.

She said that while it was important to move cautiously, waiting for too long for the risks to abate could pose systemic risks to the US economy.

John Williams, President of the San Francisco Fed, said last week that the Federal Reserve must press forward with interest rate hikes. He said that based on his views on employment and inflation he prefered a gradual pace of increase in interest rates over the next two year period.

He also said that 2.5% would be the appropriate normal rate for the short term interest rates. Although Williams is not a voting member on the FOMC, his comments were seen echoing other hawkish members of the FOMC. Williams said that he expects the U.S. economy will continue to rise moderately and said that he expects the unemployment rate to decline even further.

NY Fed Inflation expectations

The NY Fed released a report last week where it showed that consumers' inflation expectations for the year ahead was unchanged at 2.5% but increased to 2.8% for the three years ahead.

However, consumers were seen expressing pessimism on earnings, spending and the financial situation. Confidence in earnings also declined with the median on-year expectations for household earnings growth falling to 2.3%, down 0.2 points.

US Consumer prices disappoint

On Friday the US consumer price data was mixed as data showed that consumer prices rose 0.5% on the month. This was below consensus estimates of 0.6%, but higher from the 0.4% increase registered in August. Core consumer prices were, however, weaker, rising just 0.1% on the month, below estimates and slower than August.

United States Consumer Prices (annual inflation rate): 2.2% (Source: Tradingeconomics.com)

The declines came about on a number of fronts including declining prices on new and used vehicles and a decline in medical care on weaker prices. The markets were expecting a bullish beat on the inflation data which could have most probably cemented expectations for a Fed rate hike this December.

However, with the data now coming out rather muted despite the hurricanes which were expected to push inflation higher, the FOMC is likely to continue staying divided.

On a year over year basis, consumer prices were seen rising 2.2% on the year, compared to the same period previously. Core consumer prices, however, rose just 1.7% on the year and have broadly remained unchanged since May.