What the Fed meeting minutes could say about interest rates that Powell didn’t say

Federal Reserve Chairman Jerome Powell made it clear the Fed has no plans to move on interest rates for now, but market pros are still hoping minutes from the last Fed meeting will contain some clues about when the central bank might get off the sidelines.

The Fed releases the minutes of its late October meeting at 2 p.m. Wednesday, and investors are now looking for direction on interest rates and also on the Fed’s plans for the short-term funding market and its asset purchases.

The Fed cut interest rates by a quarter point Oct. 30, its third rate cut since late July. After the meeting, Powell made it clear the Fed would not cut interest rates — or raise them — unless something significant changed in its outlook. Powell reiterated the Fed’s position when he testified before Congress last week.

But the minutes could provide more nuanced detail on a Fed that was clearly divided on rate policy. Two members voted against the cut. Boston Fed President Eric Rosengren and Kansas City Fed President Esther George both voted against all three rate cuts.

“About half of the regional Fed presidents didn’t want this rate cut. The pushback will be very evident which will be an interesting contrast to this week’s tweets,” said Diane Swonk, chief economist at Grant Thornton.

Powell met with President Donald Trump Monday, and in a statement after the meeting, the Fed said his comments were consistent with his remarks at Congressional hearings last week. Trump has criticized the Fed for not easing policy more, and while he tweeted his meeting with the Fed chair went well, he also said Fed policy was hurting the

Swonk said whether the Fed eases again is dependent on Trump and what he does about trade. But if he strikes a deal, he may not get the easier policy he wants.

“[The minutes] are going to show the reluctance and rate cut fatigue within the Fed….they’ll stay on the sidelines as long as they can. If there is some sort of detente in the trade war and he can get some certainty going forward that they’re won’t be any additional tariffs, that would keep them on hold,” she said.

Chris Rupkey, chief financial economist at MUFG Union Bank, said he wants to see what the thinking is at the core of the Fed.

“They’re on hold. Monetary policy is in a good place. [Powell] spoke for quite a long time about their reasons for scurrying to the sidelines,” said Rupkey. “There shouldn’t be anything new but it still makes me wonder if the leadership of the Fed, meaning Vice Chair [Richard] Clarida, New York Fed’s [John] Williams and Powell himself. if they’re still not more concerned about the downside risks, so I”ll be looking for any characterization of what would make them spring into action.”

After facing a sharp run up in short-term rates, the Fed has also been conducting open market operations to assure adequate liquidity into the year end in the market financial institutions use to fund themselves. The Fed has used overnight and 14-day market operations to stabilize the repo market, which is basically considered the plumbing of the financial system. The Fed was reacting to a sudden spike in rates Sept. 16 and 17, and it has seen high demand for its operation though rates have stabilized.

“In a way what could be more interesting in the minutes is what they’ll say about this repo stuff. I think they’ll try to give more elaboration of what they’re trying to do,’ said Peter Boockvar, chief investment officer at Bleakley Advisory Group. Many strategists expect the Fed to turn the open market operation into a permanent repo facility.

“I think they’re just throwing stuff against the wall and hoping to get through the year-end,” he said. The Fed could also discuss its program to buy $60 billion in Treasury bills per month, into next year. “They’ll reiterate that that’s not QE, but that’s just semantics.”

Powell has emphasized that the program is not intended to be the quantitative easing programs the Fed operated during the financial crisis. But the Fed instituted the asset purchases to soothe the market after it ended its program to unwind the original QE and shrink the balance sheet.

“They could scale that back if they get through January and if things calm down,” Boockvar said. “The pace they’re doing things are really out of control. $60 billion a month —the pace of increase of the balance sheet. They’re clearly monetizing the debt here, to an extent.”

He said the repo market is a challenge for the Fed. “They’re got to figure out the repo market. There’s sport of a sense tat everything is holding together for the moment, but there’s not a lot of confidence that they’ve solved the problem. We also have a large deficit. The fact we’re issuing twice as many Treasury bonds does matter,” Boocvkar said.