Fed minutes released online

Fed winter
  • Full report
  • Important to continue to monitor financial market developments
  • Noted that some downside risks had increased
  • Business investment has moderated
  • Recent household data have been strong
  • Strong labor market, inflation near target
  • See continued sustained expansion
  • A few officials concerned that uncertainty not captured by the dot plot
  • Reserves might near efficient level later this year
  • Several participants said rate hikes might prove necessary only if inflation outcomes higher than baseline outlook
  • Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year
  • Many Fed officials unsure what rate moves may be needed in 2019
  • Almost all officials wanted to halt runoff later this year

Excerpts:

"Market participants pointed to a number of factors as contributing to the heightened volatility and sustained declines in risk asset prices and interest rates over recent months including a weaker outlook and greater uncertainties for foreign economies (particularly for Europe and China), perceptions of greater policy risks, and the partial shutdown of the federal government."

"A patient posture would allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge and, in particular, could allow policymakers to reach a firmer judgment about the extent and persistence of the economic slowdown in Europe and China."

"Against this backdrop, the staff presented options for substantially slowing the decline in reserves by ending the reduction in asset holdings at some point over the latter half of this year and thereafter holding the size of the SOMA portfolio roughly constant for a time so that the average level of reserves would fall at a very gradual pace reflecting the trend growth in other Federal Reserve liabilities."

The final note is an important one because it shows that holding reserves steady isn't Brainard's idea, it came from Fed staff. There's also a much larger consensus about keeping a large balance sheet. On net, that's positive for risk assets.