What is "Data Dependant"?

Yesterday the US Federal Reserve (the "Fed") Federal Open Market Committee (FOMC) released the minutes of its January meeting:

You can view all 21 pages by clicking on this link:

http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20150128.pdf

Most folks are probably not inclined to read through the whole thing, but we who know that the keys to future monetary policy (timing on interest rate increases) and the FOMC's deliberations are buried in here monitor their thinking closely for clues:

Here is the summary:

The Committee agreed to maintain the target range for the federal funds rate at 0 to ¼ percent and to reaffirm the indication in the statement that the Committee’s decision about how long to maintain the current target range for the federal funds rate would depend on its assessment of actual and expected progress toward its objectives of maximum employment and 2 percent inflation. Members agreed to continue to include, in the forward guidance, language indicating that the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. Members agreed that their policy decisions would remain data dependent, and they continued to include wording in the statement noting that if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate would likely occur sooner than currently anticipated, and, conversely, that if progress proves slower than expected, then increases in the target range would likely occur later than currently anticipated. 

• At the moment core inflation (taking out the volatility of energy and food prices) data remains below the Fed's  2% lower target band.
• While employment continues to grow.
• So the data that the Fed will be monitoring closely will be  developments in inflation indicators and how they are being impacted by other economic stimulus.
• One element that has failed to yet show any significant growth (and would be instrumental in future inflation expectations) is wage growth.
• So expect the Fed to be monitoring wage growth as as one of the key data points that they will be dependant on.
• The strong $US, makes prices for imported goods cheaper (the US runs a large trade deficit, as it is a significant importer of goods) and this too is an important determinant of inflationary pressures.

For the time being, the Fed is prepared to be "patient" on the timing for raising interest rates. However, it will monitor the economic data releases (US and International) as it assesses its next steps.

And so shall we!

The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.