FOMC Minutes

✅Majority of participants supported a 50 basis point cut.
✅”Almost all” participants agreed upside risks to inflation had diminished.
✅Most said downside risks to employment had increased.
✅The labor market is less tight than before the pandemic, with fewer job openings and reduced hours.
✅Companies are hiring fewer people and relying on attrition to reduce labor. Workers quitting their jobs are no longer receiving wage premiums.
✅Nominal wage growth has continued to slow, with participants noting its expected further decline.
✅The Fed notes that lower wages in the service sector may lead to deflation.
✅A few participants noted that a 25 basis point move could signal a more predictable path of policy normalization.
✅Committee gained “greater confidence” inflation moving sustainably toward 2% goal.
✅Risks to employment and inflation goals now seen as “roughly in balance”.
✅Economic activity expanding at “solid pace”, job gains slowed but unemployment remains low.
✅Inflation made “further progress” but still “somewhat elevated”.
✅Most participants see balanced risks to inflation outlook.
✅Some members would have preferred 25bp cut, citing still-elevated inflation and solid growth.
✅Bowman dissented, preferring 25bp cut due to core inflation well above target.
✅Members anticipate moving toward more neutral policy stance over time if data evolves as expected.
✅Committee will “carefully assess” data for additional rate adjustments.
✅The committee admits difficulties in interpreting labor market data due to factors like immigration and payroll data revisions.
✅The Fed sees modest slowing in GDP and expects further slowdowns, partially due to temporary factors like port strikes.
✅The recent jobs report included 785,000 government jobs, but there was an actual loss of over 250,000 regular jobs. The report was seen as weak despite public praise.

🤷‍♂️The Fed minutes suggest businesses are losing pricing power, which is important for future economic growth.
🤷‍♂️Powell presented a positive outlook at the FOMC meeting speech, however underlying economic data indicates fragility.
🤷‍♂️Continued erosion of pricing power will impact growth at business. Which in turn can lead to lowering stock prices, often companies will reduce opex (as tech companies did in 2023) through job cuts.
🤷‍♂️NFIB Optimism index further supports this theory. ✅Small business confidence ended the third quarter roughly unchanged from where it started the year. Despite continued strength in the economy, elevated uncertainty has constrained small business sentiment.
🤷‍♂️Although businesses haven’t been conducting large-scale layoffs yet, they are reducing hiring and letting workers go through attrition. This tactic of “doing more with less” could be interpreted as a subtle warning of further labor market weakening.
🤷‍♂️In this kind of environment, productivity increases often mean businesses are cutting the number of workers needed.
🤷‍♂️While Powell may have sounded hawkish during the press conference, the minutes suggest the Fed is actually concerned about the economy slowing down too much, particularly in terms of the labor market. Is the Fed is more worried about economic risks than they are letting on??
🤷‍♂️Currently bond markets are mispricing the chances of a recession, noting that they are only factoring in a 15% chance of it occurring.
🤷‍♂️Constrained household budgets, rising credit card delinquencies, and automobile loan defaults could negatively impact consumer spending in Q4. Implying that consumer spending may fall short of expectations, this coming holiday season. This may erode pricing power further in CY25.