FOMC Minutes: All participants said it was appropriate to hold rates; staff's economic outlook largely unchanged from the one provided at December meeting

Policy

• Committee was well positioned to take time to assess the evolving outlook for economic activity, the labor market, and inflation, with the vast majority pointing to a still-restrictive policy stance.
  


• Participants indicated that, provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate.
  


• Participants noted that policy decisions were not on a preset course and were conditional on the evolution of the economy, the economic outlook, and the balance of risks.


• Vast majority of participants judged risks to dual mandate objectives were roughly in balance.


• A couple of participants noted it appeared that risks to achieving inflation mandate were greater than risks to employment mandate


• Majority of participants observed that the current high degree of uncertainty made it appropriate for the Committee to take a careful approach in considering additional adjustments to the stance of monetary policy.
  


• Many participants noted that the Committee could hold the policy rate at a restrictive level if the economy remained strong and inflation remained elevated, while several remarked that policy could be eased if labor market conditions deteriorated, economic activity faltered, or inflation returned to 2 percent more quickly than anticipated.


• A few noted, however, that the current target range for the federal funds rate may not be far above its neutral level.

Balance sheet

• Various participants noted it may be appropriate to consider pausing or slowing balance sheet runoff until resolution of debt ceiling dynamics.


• Many participants noted after conclusion of balance sheet runoff it would be appropriate to structure asset purchases to move maturity composition closer to outstanding stock of Treasury debt.


• Fed survey respondents forecast balance sheet runoff process concluding by mid-2025, slightly later than previously expected.

Inflation

• Participants generally pointed to upside risks to the inflation outlook.


• Some participants cited potential changes in trade and immigration policy as having potential to hinder disinflation process.


• A couple of participants remarked that, in the period ahead, it might be especially difficult to distinguish between relatively persistent changes in inflation and more temporary changes that might be associated with the introduction of new government policies.


• A number of participants remarked that current readings of 12-month inflation were boosted by relatively high inflation readings in the first quarter of last year, and several participants noted that cumulative inflation over the past 3, 6, or 9 months showed greater progress than 12‑month measures.


• Most participants commented that month-over-month inflation readings in November and December had exhibited notable progress toward the Committee's goal of price stability, including in some key subcategories.


• Many participants, however, emphasized that additional evidence of continued disinflation would be needed to support the view that inflation was returning sustainably to 2 percent.


• Participants expected that, under appropriate monetary policy, inflation would continue to move toward 2 percent, although progress could remain uneven.


• Some participants remarked that reported inflation at the beginning of the year was harder than usual to interpret because of the difficulties in fully removing seasonal effects, and a couple of participants commented that any increase in reported inflation in the first quarter due to such difficulties would imply a corresponding decrease in reported inflation in other quarters of the year.

Labor Market

• Labor market conditions had remained solid and that those conditions were broadly consistent with the Committee's goal of maximum employment.


• Participants also noted that recent readings of indicators such as job vacancies, the quits rate, and labor turnover were generally consistent with stable labor market conditions.


• Participants anticipated that under appropriate monetary policy, conditions in the labor market would likely remain solid.


• Nonetheless, participants generally noted that labor market indicators merited close monitoring.

Economic Activity

• Participants observed that the economy had continued to expand at a solid pace and that recent data on economic activity, and consumer spending in particular were, on balance, stronger than anticipated.


• Participants remarked that consumption had been supported by a solid labor market, elevated household net worth, and rising real wages, which had been associated in part with productivity gains.


• Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending.


• A few participants cited continued increases in rates of delinquencies on credit card borrowing and automobile loans as signs of such strains.

Financial Conditions

• Many participants noted that certain financial conditions had tightened over the past several months. For example, longer-term Treasury and corporate bond yields and mortgage rates had risen notably.


• A couple of participants commented that high equity valuations or low credit spreads were providing some support to economic activity.

Financial Stability

• Several participants mentioned issues related to the banking system.


• A few commented that bank funding risks had lessened and that many banks had improved their ability to access the discount window.


• A couple observed that some banks had increased their reliance on reciprocal deposits, and that the stability of these deposits had not been tested in a time of stress.


• Several participants noted that some banks remained vulnerable to a rise in longer-term yields and the associated unrealized losses on bank assets.


• A few participants noted concerns about asset valuation pressures in equity and corporate debt markets.


• A few participants discussed vulnerabilities associated with CRE exposures, noting that risks remained, although there were some signs that the deterioration of conditions in the CRE sector was lessening.


• Several participants commented on vulnerabilities in the Treasury market, including concerns about dealer intermediation capacity and the degree of leveraged positions in the market.


• The migration to central clearing was noted by a few as an important development to track in this regard.

Reaction details (19:22)

• Note, a few minutes after the release of the minutes both stocks and bonds saw some upside, while dollar saw weakness. Potentially on the comments around the balance sheet; "Various participants noted it may be appropriate to consider pausing or slowing balance sheet runoff until resolution of debt ceiling dynamics."
  


• 10 minutes after the minutes were released, E-mini S&P 500 rose from 6,150 to 6,165.


• From the release of the minutes, T-notes rose from 108-26  to 109-00.

19 Feb 2025 - 19:00- Fixed IncomeData- Source: Federal Reserve