Fed Minutes

You don’t want to misprice risk – that’s one of the key ideas in the July Fed minutes just out.

Several suggested that the Committee would likely have ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis.  In addition, although near-term downside risks to the outlook had diminished over the intermeeting period, some participants stressed that the Committee needed to consider the constraints on the conduct of monetary policy associated with proximity to the effective lower bound on short-term interest rates.  These participants concluded that the Committee should wait to take another step in removing accommodation until the data on economic activity provided a greater level of confidence that economic growth was strong enough to withstand a possible downward shock to demand.  However, some other participants viewed recent economic developments as indicating that labor market conditions were at or close to those consistent with maximum employment and expected that the recent progress in reaching the Committee’s inflation objective would continue, even with further steps to gradually remove monetary policy accommodation.  Given their economic outlook, they judged that another increase in the federal funds rate was or would soon be warranted, with a couple of them advocating an increase at this meeting. A few participants pointed out that various benchmarks for assessing the appropriate stance of monetary policy supported taking another step in removing policy accommodation.  A few also emphasized the risk to the economic expansion that would be associated with allowing labor market conditions to tighten to an extent that could lead to an unwanted buildup of inflation pressures and thus eventually require a rapid increase in the federal funds rate.  In addition, several expressed concern that an extended period of low interest rates risked intensifying incentives for investors to reach for yield and could lead to the misallocation of capital and mispricing of risk, with possible adverse consequences for financial stability.

This seems a pretty useful way of looking at things.

All three of the major average we watch – which had looked for bad news – came up and turned positive after odds of a fed increase seemed to increaser going forward.

As explained to subscribers this morning, we tend to watch the data – and a sell off tdo some degree is always expected ahead of anything “Fedly”.

Now that the minutes are out and money is still cheap, may I please have my 2,200 on the S&P 500, pretty please?