Watching the Federal Reserve shift it's stance on the American economy is like watching ice melt. It just happens right before your eyes.
Investors will be looking at it on Wednesday in the week ahead. That's when the central bank releases minutes from its meeting last month.
While it was a meeting at which the Fed did not make changes to its target short-term interest rate, the meeting marked a subtly significant turn in its economic outlook. The bankers decided to become "patient" when deciding future interest rate changes. No longer is the Fed forecasting interest rate increases in the months ahead. Instead, the interest rate setting committee expressed concern about the economic outlook in the even-handed way one would expect from a group of government economists.
That's why reading about the internal deliberations will be important. In December, the group voted to raise its interest rate. What "global economic and financial developments" fueled the Fed's patience six weeks later? Was it the government shutdown? Another round of trade tariffs coming? Was it the bear market in stocks at the end of 2018?
The minutes also may provide clues into the Fed's second but much less noted January statement regarding the use of its balance sheet. After the Great Recession the Fed bought billions of dollars of bonds, mostly mortgage-backed bonds, in an effort to keep borrowing rates down and goose the economy. More recently, as those bonds mature, the Fed has been rolling them off its balance sheet. Some call it quantitative tightening. Last month, the bank said "after extensive deliberations," it is ready to adjust its bond strategy "in light of economic and financial developments."
What developments? Climbing corporate debt? Rising consumer borrowing? A drop in business and consumer confidence?
Investors hope the meeting's minutes will bring them into the light the Federal Reserve is using to find its way.
