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FOMC minutes a market diversion until Jackson Hole

The Federal Open Market Committee releases minutes from its last meeting on Wednesday afternoon, but Wall Street is already downplaying the event as a sideshow in comparison to an annual symposium on monetary policy in Jackson Hole, Wyoming, two days later.

"The FOMC minutes are telling us about what happened three weeks ago, and Jackson Hole, given its precedent for signaling meaningful policy shifts, has taken on this very elevated status; it gets that extra attention even if it is just an academic conference," said Jeff Greenberg, senior economist at J.P. Morgan Private Bank.

While investors will parse Wednesday's minutes for clues as to when the Fed will start hiking interest rates, "the real look ahead for any hints as to monetary policy is Jackson Hole," said Art Hogan, chief market strategist at Wunderlich Securities.

Federal Reserve Bank Chair Janet Yellen delivers her opening remarks to the Joint Economic Committee during a hearing entitled "The Economic Outlook," on Capitol Hill, May 7, 2014.
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Federal Reserve Bank Chair Janet Yellen delivers her opening remarks to the Joint Economic Committee during a hearing entitled "The Economic Outlook," on Capitol Hill, May 7, 2014.

Fed Chair Janet Yellen and European Central Bank President Mario Draghi are among those speaking at Jackson Hole, with Yellen slated to open the gathering with an address on labor markets, her area of expertise as well as a portion of the Fed's dual mandate, .i.e. maximum employment, and the other piece being inflation, or price stability.

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Economic data on Tuesday had the cost of living rising in July at its slowest rate in five months. with Inflation still under the Fed's target of 2 percent, a scenario that gives the central bank additional wiggle room to keep interest rates low even after the Fed halts its bond purchases in October.

The jobless rate rose to 6.2 percent in July, but the measure is not necessarily reflective of Americans who want to work full time but can only find part-time employment, or those so discouraged they've stopped looking for work altogether.

"What we'll hear about from Yellen is more and more commentary on how the unemployment rate is not necessarily representative of a broader slack in the labor market, given the level of part-time workers that want to be full time, and the low level of wage growth. Without all those measures getting back to normal levels, we're missing the maximum employment part of their mandate, that will dominate," Greenberg said.

"Something has changed in the labor markets since the great recession; low wages are being seen across the majority of professions," said Jim Russell, senior equity strategist for U.S. Bank Wealth Management.

"The big question for the Fed, and for tomorrow (Wednesday) and Friday, is which of these (maximum employment or price stability) is more important. And the theme of Jackson Hole, the labor market, is much more important to the FOMC, and monetary policy, right now than the inflation side of the Fed's mandate," Greenberg said.

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Yellen is likely to communicate the view that "the labor market remains incredibly weak, and she's inclined to keep monetary policy easy until the labor market has healed. We think easy monetary policy is good news for the stock market," he said.

—By CNBC's Kate Gibson

  • Patti Domm

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