00:00Let's head to the Federal Reserve and those latest minutes and Michael McKee. Mike.
00:05Well, Kevin Warsh was right. The minutes do suggest there was a bit of an old-fashioned
00:09family fight at the July meeting as participants argued over the outlook for inflation and
00:15monetary policy. Two lines of general agreement stand out. Many participants assessed that policy
00:21tightening would likely be necessary if inflation did not decline. Now, remember, this meeting took
00:27place after the June CPI report that showed inflation had declined more than anticipated.
00:34And participants judged that their inflation outlooks were highly uncertain and that inflation
00:39risks were skewed to the upside. Many participants noted that the recent re-escalation of the conflict
00:46in the Middle East significantly clouded the inflation outlook. Inflation was first and
00:52foremost in the debate, and the committee's counting words show a lot of division.
00:56Several participants noted that price increases over the past year were broad-based, and some
01:03said underlying inflation appeared to be elevated. AI spending had also been subject to price
01:09pressures. But inflation expectations remained contained, and most participants anticipated inflation
01:17would step down over the rest of the year as the effects of tariffs and earlier energy price
01:22increases wane. But again, what? Many participants noted the possibility that inflation might be more
01:29persistently elevated. Several noted companies had accommodated price increases by compressing margins,
01:36but they suggested if the Middle East conflict went on, they might have to raise prices, while a couple noted
01:43that business contacts judged consumers would resist those price increases. They also disagreed on the impact of AI
01:51AI at the moment, with some noting its inflation risks in the short run, while some also said AI
01:57productivity increases would cancel that out. In the end, most members agreed to hold rates at that meeting under the
02:05assumption that additional data before September would offer more clarity. And speaking of additional meetings,
02:12Chairman Walsh suggested six scheduled meetings per year to the committee, held roughly every two months,
02:18saying that would allow more information to accumulate between meetings and provide policymakers and staff
02:25with more time to consider what he called strategic policy issues. Walsh asked for input from the committee,
02:33and no decision was reached at the meeting other than there would be no changes made this year.
02:39All right, Michael McKee there at the Federal Reserve. Mike, you're going to stay with us. I'm just
02:43looking quickly here in terms of market reaction, a little bit of a lift to the equity trade. I did
02:50see
02:50the S&P up about 22 points ahead of these Fed minutes. They're now up about 32. The Nasdaq 100
02:58was just
02:58down a fraction of a point. Now it's up about two and a half points. And let's go on over
03:02to what we are seeing
03:04in terms of U.S. Treasury yields. And we have seen a little bit of a dip lower. So where's
03:09that two-year
03:10note right now? 418, five-year note with a yield of 435. And you've got that 10-year note with
03:16a yield
03:16of 465. Mike, interesting. First of all, six meetings by the FOMC would be two less than what's
03:25on the calendar currently. What's sticking out here for you following the latest Fed meeting? You were
03:32there in the room, put a question to Kevin Warsh, Fed chair, that many thought was really smart in
03:38terms of like, what are you watching to figure out kind of where we go next? But tell us based
03:43off of
03:43these minutes if you got any more clarity about what the FOMC is thinking. I think what the minute
03:50show is that the committee was much more divided than people had anticipated. The counting words
03:56that they use, the adjectives for how many people were on one side or another, are much more in
04:04evidence in this set of minutes than I think I've ever seen, especially the words some and several.
04:11Look, sounds like basically there were people who had opinions on a whole range of things that were
04:17expressed, which Warsh said he wants to see. But it didn't suggest at this point that they have
04:22any kind of unified view about what's going to happen in the future with inflation. They did say
04:27it's very uncertain at this time. My thought was that three weeks ago, when this meeting took place,
04:36they might have still been leaning towards the idea of a September rate cut. Now we've seen some
04:41changes to that view since then in the markets. But this was a somewhat hawkish group of people who
04:47were concerned about inflation and the fact that they didn't know what was going to happen.
04:52So Mike, we're likely to hear from the Fed again in just a week from now at Jackson Hole. Now
04:59that
04:59we've looked through the minutes and we have maybe a little bit more of an understanding of how they're
05:03thinking about inflationary pressures and the health of the economy, does it inform us at all about
05:08what we're going to hear next week? I don't really think so because of the stance that Kevin Warsh has
05:14taken about not giving any kind of forward guidance. I suspect that he might offer a little bit more in
05:19terms of what their framework for monetary policy is, what's their reaction function, and he may
05:27outline more about what he's trying to do with his task forces and reforms at the Fed. And then finally,
05:34maybe some more comment on how many meetings they might have. But I don't think the markets are going
05:39to have a takeaway that the Fed is going to do this or that in the way that they have
05:43after some
05:44chairman's address is there. What's not answered for you, Mike, in these minutes? Like we always get
05:51more detail, right, of what was going on at the meeting. But what is really missing here for you
05:55still? Well, I don't think we get a real clear view of what's going to happen ahead.
06:01There was general agreement that if inflation doesn't come down, they might have to raise rates.
06:06But there was also general agreement that the inflation picture was extremely cloudy.
06:11They said in the minutes that they were hoping the fact that they would have two CPI reports,
06:17two PPI reports, two PCE reports before the next meeting would give them more clarity.
06:21And I think that's still where we are today.
Comments