00:00Well, it does appear that the minutes of Jay Powell's last meeting as Fed chair show that members were more
00:06concerned about the possibility of a rate increase down the road than perhaps the markets were thinking.
00:12High energy prices contributing to inflation because of the Iran war amid concerns the war could drag on long enough
00:20that inflation expectations become unmoored.
00:23While participants generally expected that tariff driven inflation would ease during the course of the year, some noted tariffs could
00:32be increased, leading to additional upward pressure on prices.
00:35And given all that, almost all participants noted there was a risk that the conflict in the Middle East could
00:42persist for an extended period or that even after the conflict ended, the prices of oil and other commodities could
00:48remain elevated for longer than expected.
00:51The vast majority noted inflation could take longer to return to target than they had previously expected.
00:58A majority of participants highlighted the minutes say that some policy firming would likely become appropriate if inflation were to
01:07continually run above the 2 percent target.
01:11To address this possibility, they continue.
01:14Many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing
01:21bias.
01:21Remember, it was a 9-to-3 vote to remove that bias, but apparently a number of additional participants who
01:30weren't voters agreed with the three who wanted to take it out.
01:33Overall, the economy was performing well the minute, say, the labor market appeared stable, although uncertainty about the future outlook
01:41for the economy might have been holding down hiring.
01:44There was also an extended discussion of financial stability, with participants concerned about the possibility of losses in private credit
01:52that might lead to a broad credit contraction.
01:55A few worried about hedge fund participation in the Treasury market, noting that unwinding of leveraged positions by those institutions
02:03could generate broader financial market pressures, and many mentioned concerns about cybersecurity.
02:11Tim and Emily?
02:11My ears perked up when you said private credit.
02:15I mean, how unusual is it to see the central bank opining on a specific asset class in these minutes?
02:21And do we have – I know you're just reading them right now, but do we have any more insights
02:25into more risks that they flagged on that sector?
02:29We don't really have any more.
02:31It doesn't go into great detail about it.
02:33But remember, private credit's been in the news a lot, and there have been some funds that halted redemptions.
02:37And so there are questions about what that would mean.
02:41And so apparently members decided that they were going to discuss it, and they did express some concerns, perhaps more
02:48than we've normally heard, certainly from participants in the private credit space who say it's not a risk.
02:55Fed officials see that there perhaps could be something out there.
03:00Hey, Mike, on the war, that got me thinking about what the Fed actually can do when it comes to
03:06a higher inflationary environment as a result of higher oil prices.
03:10It's not like the Fed can bring down oil prices.
03:12They can only tamp down demand.
03:15What does an extended period actually mean in Federal Reserve speak and how it could affect rate policy?
03:22Well, they don't specify, but it probably means months.
03:25And they're talking about more than just high energy prices.
03:28They're talking about high energy prices feeding into other parts of the economy and parts of the economy that perhaps
03:36use petroleum to make products or to deliver products,
03:40and that that would push inflation expectations higher as a broader price increase started to affect Americans.
03:47And that's what they're particularly concerned about.
03:49And what they did seem worried about is that this conflict could, and so far has, lasted a lot longer
03:57than the administration suggested it would.
03:59And so as long as that continues, that increases the risk of the inflation expectations problem.
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