The FOMC released the minutes of its July 28-29 meeting earlier today. While there was no discussion of raising the Fed funds target at the July meeting, all agreed that economic conditions are improving and that the labor market is getting stronger. The inflation rate is below the Fed’s 2% target and will be watched closely. Most members felt that pressures keeping inflation where it is or pushing it lower are abating. No one expected a further sharp drop in oil and energy prices. Comparing the members’ comments about the economy as it was when they met to more recent releases on GDP, industrial production and housing starts reveal an improving economy. There appears to be a growing consensus for a move towards raising the fed funds rate. One member of the committee noted that further increases after the initial move should gradual.
However, all the data aren’t in yet. The next FOMC meeting is on September 17th. Before then we will see another employment report, another personal income and spending release with the Fed’s preferred inflation indicator, the personal consumption deflator and several other data releases. FOMC decisions will depend on the upcoming data.
The economy is improving, inflation isn’t falling, the Fed wants to begin normalizing monetary conditions and the policy tools are all in place. It looks more and more like September will see the first move up 2006.
Those expecting the Fed to delay any move because of the rising US dollar, Greek debts or Chinese stocks were disappointed by the minutes – there were some comments but no suggestion that foreign developments would get top billing and sway Fed policy.
As the chart shows, Its been a long time…
This article was written by David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices.
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