President Donald Trump is also complicating matters. He reportedly told Republican donors at an Aug. 17 fundraiser that he did not appreciate rate hikes, building on comments he offered last month.
The debate about what to do with interest rates next year “will definitely be part of the conversation” in the minutes, but references to Trump probably won’t be, said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
“What the president wants in this instance is directly contrary to what is the governing principle for the Fed, and so I think the Fed will be true to its foundational elements,” Porcelli said. “The Fed is supposed to raise rates north of neutral if economic activity is accelerating and they are worried about the potential for overheating. That’s the job.”
June’s minutes also said a few officials advocated a more in-depth conversation “before too long” about the game plan for the Fed’s balance sheet, which they began unwinding earlier this year. That may not have taken place at the last meeting, but the minutes could preview how that discussion will go.
Fed officials say they still don’t know how far they will be able to shrink the balance sheet. It ballooned to $4.5 trillion after years of bond purchases in the wake of the financial crisis, which created a pile of cash reserves held by banks on deposit at the Fed.
But policy makers are watching the federal funds rate for clues -- as reserves become increasingly scarce it should rise -- and the recent upward drift of the rate within the quarter-point target range the FOMC sets for it has some analysts predicting there may not be much further to go.
“That’s a big shift,” said Blake Gwinn, a strategist at NatWest Markets in Stamford, Connecticut, who previously worked at the New York Fed. “At some point they are going to have to come out and talk about this, and sooner probably is better than later.”
This article was provided by Bloomberg News.