At this point the FOMC meeting minutes reflect conditions from three weeks ago. There was little to surprise in the Committee’s discussions regarding monetary policy. The consensus was perhaps a smidgeon less hawkish, but there was nothing that would suggest a December rate hike was off the table. More interesting was the review of the framework of reserve requirements that appeared at the top of the minutes.
The minutes of the November 7-8 meeting led off with a long and detailed discussion of the costs and benefits of keeping with the current “abundant excess reserves” framework for implementing monetary policy or returning to one of “limited reserves” in place prior to the financial crisis and recession. It was clear that the FOMC is favoring the “abundant excess reserves” environment as working and workable in a variety of scenarios. However as yet, no decision has been made and further discussion will be held.
The Committee also is exploring moving to use of the overnight bank funding rate (OBFR) in place of the effective fed funds rate (EFFR). The “potential benefits” of the OBFR is in “[t]he larger volume of transactions and greater variety of lenders underlying the OBFR could make that rate a broader and more robust indicator of banks’ overnight funding costs, the OBFR could become an even better indicator after the potential incorporation of data on onshore wholesale deposits, and the similarity of the OBFR and the EFFR suggested that transitioning to the OBFR would not require significant changes in the way the Committee conducted and communicated monetary policy.” Participants agreed on further discussion at future meetings.
In discussing current monetary policy, “participants generally indicated little change in their assessment of the economic outlook, with above-trend economic growth expected to continue before slowing to a pace closer to trend over the medium term”.
The labor market was characterized as strong or tight with many Districts noting “difficulties finding qualified workers.” A “couple” of participants “saw scope for further increases in labor force participation” which was balanced out by a “couple of other[s]” seeing little remaining slack to draw on. Firms are meeting labor shortages with training programs, outsourcing, or automation, or by increasing wages to attract skilled workers.
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