Source: www.federalreserve.gov/monetarypolicy/files/fomcminutes20240731.pdf

TLDRS:

• The Federal Reserve’s July FOMC meeting minutes highlight economic concerns and financial vulnerabilities.
• Usage of the Overnight Reverse Repo (ON RRP) facility slightly declined, with a more noticeable decrease expected later in the year due to increased Treasury bill issuance but could change due to idiosyncratic factors specific to some ON RRP participants.
• The U.S. financial system’s vulnerabilities were noted as significant by the staff, with elevated asset valuation pressures and low risk premiums; house prices remain high relative to fundamentals, while commercial real estate (CRE) prices continue to drop.
• Financial sector leverage is notable, with high banking sector capital ratios but low asset values; hedge fund leverage is at its highest since 2013, and life insurers are holding more risky and illiquid securities.
• Significant funding risks are present, with assets in prime money market funds at historical highs; life insurers’ reliance on nontraditional liabilities and risky corporate debt raises concerns about potential funding pressures.
• Risks to the inflation forecast remain tilted to the upside, though less so than at the previous meeting.
• To fix one end of their mandate (price stability) from the inflation problem they created, the Fed will continue sacrificing employment (the other end of their mandate) to bolster price stability by continuing to hold or even increasing interest rates–causing further stress to businesses and households.
• I believe inflation is the match that has been lit that will light the fuse of our rocket.

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