Sterne Agee: Fed Committed On International Growth And Domestic Inflation

Lindsey Piegza, Sterne Agee's chief economist commented earlier this week on the Fed's October meeting minutes.

While the minutes offered no specifics of a timeline for rate increases, it focused mostly on new barriers to rate hikes.

“In the September minutes, international growth was a dominant theme, and now again in October,” Piegza wrote in a note on Wednesday. “Committee members remain concerned regarding sluggish international growth putting downward pressure on import prices and upward pressure on the dollar.”

Piegza notes that committee members expressed a “limited” impact from overseas activity, despite ongoing issues including Japan's recent dip into a recession, concerning home price declines and manufacturing activity in China and minimal growth stemming from the eurozone.

The Committee expressed a view that inflation continues to track below its longer-run objective and will remain low in the near-term due to energy price declines and other factors. Piegza notes that a concern over further declines in inflation led Minneapolis' Federal Reserve President Narayana Kocherlakota to “dissent” at October's meeting.

The Fed now expects inflation to move towards its 2 percent objective in years, and not months, Piegza adds.

“Those expecting specifics regarding the timeline for rate increases were severely disappointed, yet again,” Piegza wrote. “The October FOMC meeting minutes continue to show an ongoing battle among members over what to watch, when to move, and how to best convey the answers to both of these questions to the marketplace.”

Bottom line, if economic data proves to disappoint in the near-term, the Fed will “remain on hold” longer than expected. If data continues to improve more rapidly than expected, the Fed is “likely to expedite” rate hikes.