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The minutes for the September FOMC meeting got released yesterday, but it didn’t really spark a lot of fireworks for the Greenback, probably because forex traders were more focused on this Friday’s U.S. retail sales report, as well as Fed Head Yellen’s speech.

Still, there were a few takeaways that you should know about and keep in mind going forward, and I’ve listed them down for ya!

1. Why the Fed kept its powder dry

After reviewing the available economic data and assessing their outlook for growth, inflation, and the labor market, Fed officials “generally agreed that the case for an increase in the policy rate had strengthened.”

In fact, the minutes revealed that “a reasonable argument could be made either for an increase at [the September FOMC] meeting or for waiting for some additional information on the labor market and inflation.”

Ultimately, however, the majority of Fed officials chose the latter option, explaining that a “cautious approach” was warranted because “slack likely [remained] in the labor market and inflation [continued] to run below the Committee’s objective.”

Basically, it’s the same reason Fed Head Yellen gave in her prepared speech for the September FOMC press conference when she said that:

“But with labor market slack being taken up at a somewhat slower pace than in previous years, scope for some further improvement in the labor market remaining, and inflation continuing to run below our 2 percent target, we chose to wait for further evidence of continued progress toward our objectives.”

Still, interest rate junkies should be happy to know that Fed officials were seriously considering a rate hike back in September since that’s a pretty hawkish sign.

2. Decision was a “close call”

For those Fed officials who ended up voting to keep rates steady during the September FOMC meeting, “several” said that their decision “was a close call.” However, Fed officials were divided on the conditions needed to convince them to finally vote for a rate hike. And they were divided because:

“Some participants believed that it would be appropriate to raise the target range for the federal funds rate relatively soon if the labor market continued to improve and economic activity strengthened, while some others preferred to wait for more convincing evidence that inflation was moving toward the Committee’s 2 percent objective.”

In short, some Fed officials were more focused on the labor market and economic growth, while others had their eyes on inflation.

3. Why the dissenters dissented

Okay, we now know that the Fed could have hiked in September, but the decision to hold off on hiking “was a close call.” But as I noted in my 5 Highlights of the September FOMC Statement, there were three Fed officials who dissented, opting instead for a 25 bps rate hike right then and there. And these Fed officials were Kansas City Fed President Esther L. George, Cleveland Fed President Loretta J. Mester, and Boston Fed President Eric Rosengren.

September FOMC Meeting Voting Records
September FOMC Meeting Voting Records

So, why did the three musketeers dissent from the majority decision? Well, according to the minutes:

“Three members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting. They cautioned that postponing policy firming for too long could push the unemployment rate markedly below its longer-run normal rate over the next few years. If so, the Committee might then need to tighten policy more rapidly, thereby posing risks to continued economic expansion.”

4. Fed worried about credibility

Aside from the reason mentioned above, a “couple” of dissenters also “expressed concern about the potential adverse effects on the credibility of the Committee’s policy communications if the next step in the gradual removal of accommodation was further postponed.”

This credibility issue must have struck a chord with the other Fed officials because “several” of them also “expressed concern that continuing to delay an increase in the target range implied a further divergence from policy benchmarks based on the Committee’s past behavior or risked eroding its credibility, especially given that recent economic data had largely corroborated the Committee’s economic outlook.”

In simple English, the Fed is afraid that its credibility may take a hit, given that the Fed continues to hold off on hiking, even though economic developments have been mostly supportive of a rate hike.

5. Consumer spending likely weakened in Q3

According to the minutes, “many” Fed officials “expected household spending to be a primary contributor to economic growth going forward” because they “saw consumer spending as likely to be supported by a number of factors, including ongoing job gains, rising household income and wealth, improved household balance sheets, and buoyant consumer sentiment.”

However, Fed officials also warned that “Growth in consumer spending appeared to have moderated somewhat in the third quarter from its rapid second-quarter pace, reflecting a softening in retail sales since June.”

This should be a heads up to those who are planning to trade this Friday’s retail sales report, since an upside surprise may give Greenback bulls the reason they need to jump in.

6. Faster economic growth in H2 still expected

Despite the expected softening in retail sales, Fed officials still expect the U.S. economy to grow at a faster pace in the second half of the year, “buoyed in part by a pickup in business fixed investment and some rebuilding of inventories.”

And one example that’s “seen as a positive sign for business investment” cited in the minutes was the “recent increase in oil drilling rigs in operation.”

Final Thoughts

The FOMC meeting minutes didn’t have an explosive impact on the Greenback’s price action, but it did slightly improve the probability of a December rate hike from 69.5% to 69.9%, according to the CME Group’s FedWatch Tool.

December FOMC Meeting Probabilities

Interestingly enough, it even actually improved the probability of a November rate hike from 8.3% to 9.3%, although that’s still admittedly very low. November FOMC Meeting Probabilities

So, given that the Fed was seriously considering a September rate hike and that the decision to keep its powder dry was a “close call” and that the Fed is worried about its credibility, are you expecting a rate hike this year?