FOMC Minutes

Full text from FOMC website.

Excerpts:

In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4-1/4 percent. With spending apparently retaining considerable momentum, and with the indirect effects of increased energy prices still threatening to raise core inflation at least for a time, the Committee thought that additional policy firming at this meeting was appropriate to keep inflation and inflation expectations in check. Committee members generally anticipated that policy would likely need to be firmed further going forward. In that process, the Committee would need to be mindful of the lags in the effect of policy firming on the economy. However, it would also have to take account of the effects of the sustained period of favorable financial conditions on asset prices and aggregate demand as well as the resulting possibility of further increases in resource utilization and pressures on prices. Views differed on how much further tightening might be required. Because the Committee's actions over the past eighteen months had significantly reduced the degree of monetary policy accommodation, members thought that the policy outlook was becoming considerably less certain and that policy decisions going forward would depend to an increased extent on the implications of incoming economic data for future growth and inflation.

The Committee agreed that several changes in the wording of the announcement to be released after today's meeting would be appropriate. The federal funds rate had been boosted substantially, and, in the view of some members, it was now likely within a broad range of values that might turn out to be consistent with output remaining close to potential. In these circumstances, the Committee thought that policy should no longer be characterized as accommodative. Members concurred that the statement should note that the expansion remained solid despite elevated energy prices and hurricane-related disruptions. While inflation and long-term inflation expectations remained contained, the Committee agreed that the announcement should indicate that possible increases in resource utilization, as well as elevated energy prices, had the potential to add to inflation pressures and that "some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance." Although future action would depend on the incoming data, this characterization of the outlook for policy was seen by most members as indicating that, given the information now in hand, the number of additional firming steps required probably would not be large. Some members thought that the word "measured" was no longer necessary, but its retention for this meeting was seen as potentially useful to preclude a possible misinterpretation that the Committee now saw a significant possibility of adjusting policy in larger increments in the near future. Wording of the announcement along these lines was not expected to have a substantial effect on market expectations for policy, though such effects were especially difficult to judge given the extensive changes being made to the statement. The members agreed that the announcement should end by noting that policy will respond to changes in economic prospects as needed to foster the Committee's objectives.

See here for the Wall St. Journal's take.

I thought it was worth quoting those two paragraphs so as not to take any part of it out of context. It is interesting to note that they kept the word "measured" in to make sure that no one would think that it meant that rates were about to go up at a higher rate (e.g. 50 basis points). For the moment at least, that seems to be off the table, especially since they mention being mindful of policy lags.

No, the tone now seems to be that most of the heavy lifting is done. That news certainly pleased the stock market. There are still some inflation hawks who would go further, and certainly developments in the incoming data could still push things in that direction--I don't dispute that. Greenspan will hike rates one more time as he leaves. After that, it's an even bet. Dave Altig's implied probability charts showed things moving in that direction a few days ago. I am certainly looking forward to an update. I think it's going to be pretty close for March, maybe 55/45. We'll see.

Nothing too surprising in the minutes. The most interesting part was the discussion of the change in language and possible misinterpretation. The road to transparency is not without bumps.

Elsewhere in the blogosphere, Barry Ritholtz has a pithy summary.

UPDATE: Mark Thoma is more surprised than I was by the "measured" discussion. I can see where they are coming from. It wouldn't have been my interpretation. In fact, I argued against that interpretation back in September. Maybe that's why I'm less surprised.