FOMC minutes: No material changes for the medium-term outlook - Nomura

The minutes from the 31 October – 1 November FOMC meeting contained no material change in the Committee’s view for the medium-term outlook as most participants maintained their view that the tightening labor market will likely show through to higher inflation, which would stabilize around the Committee’s target over the medium term, explains the research team at Nomura.

Key Quotes

“The minutes suggest that the divergence between the core members and those who are concerned about weak inflation persists. In our view, those participants concerned that inflation may remain below 2% for longer than currently expected may include Kashkari, Evans, Brainard and Bullard. Although this divergence may seem dovish, it is nothing new. It may lead to a few dissents in the December meeting but these will not be enough to derail a December hike, which we and markets are expecting.”

“At this point, the incoming data on economic activity and inflation since the last meeting have been strong. In particular, the latest CPI report, which was released after the last meeting, suggests an underlying trend more closely aligned with the FOMC’s expectations. This CPI print rendered the discussions on inflation reflected in the minutes somewhat stale.” 

“The discussion of "potential alternative frameworks for the conduct of monetary policy" ahead of the leadership transition at the Fed was slightly surprising. However, we do not expect this to be a material development over the near term as it seems unlikely for the Fed’s new leadership to jump right into a change this substantial. Instead, this discussion is more of a long-term issue. Both Williams and Evans have been talking about this topic, likely as an effort to jumpstart the discussion. Once Powell is confirmed as the new Chair, the new leadership is likely to first focus on forging consensus among the Committee. However, looking ahead, this discussion would be one debate we will monitor.”