Given the major reshuffle in the voters on the FOMC, we suspect today’s minutes will be shrugged off as ‘old news’, but the fact that gold prices have risen incessantly since Yellen raised rates at her last meeting suggests some language will be needed to tamp down that anti-dollar view.
Hopes that the Minutes would clarify the confusion left by The Fed’s growth outlook raise and inflation leave and increased its rate trajectory to 7 hikes (from 6), were dashed.
Bloomberg’s Cameron Crise notes that while it’s true that some notable doves are booted out of the voting rotation this year, keep an eye on whether an increasing number of meeting participants will require inflation measures to show up more forcefully before sanctioning another rate hike. If “several,” “a number” or “many” committee members express some unease, then we could be looking at a properly painful squeeze of Treasury shorts.
- *MOST FED OFFICIALS BACKED CONTINUED GRADUAL RATE HIKES
- *FED: FASTER INFLATION FROM TAX CUT AMONG REASONS TO SPEED HIKES
- *SEVERAL FED OFFICIALS CONCERNED BY LOW INFLATION EXPECTATIONS
- *COUPLE OF FED OFFICIALS CONCERNED BY FINANCIAL STABILITY RISKS
- *FED OFFICIALS GENERALLY AGREED FLATTER YIELD CURVE NOT UNUSUAL
Following are selected excerpts from the FOMC meeting minutes that concluded on Dec. 13:
“Participants discussed several risks that, if realized, could necessitate a steeper path of increases in the target range; these risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level, perhaps owing to fiscal stimulus or accommodative financial market conditions.”
“Many participants expected the proposed cuts in personal taxes to provide some boost to consumer spending.”
“Many participants judged that the proposed changes in business taxes, if enacted, would likely provide a modest boost to capital spending, although the magnitude of the effects was uncertain.”
“Participants also discussed risks that could lead to a flatter trajectory for the federal funds rate in the medium term, including a failure of actual or expected inflation to move up to the Committee’s 2 percent objective.”
Meeting participants “generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards.”
“In light of elevated asset valuations and low financial market volatility, a couple of participants expressed concern that the persistence of highly accommodative financial conditions could, over time, pose risks to financial stability.”
“Regarding inflation, participants generally viewed the medium-term outlook as little changed, and a majority commented that they continued to expect inflation to gradually return to the Committee’s 2 percent longer-run objective.”
“Many indicated that they expected cyclical pressures associated with a tightening labor market to show through to higher inflation over the medium term.”
“Several of them expressed concern that persistently weak inflation may have led to a decline in longer-term inflation expectations; they pointed to low market-based measures of inflation compensation, declines in some survey measures of inflation expectations, or evidence from statistical models suggesting that the underlying trend in inflation had fallen in recent years.”
“Due to the persistent shortfall of inflation from the Committee’s 2 percent objective, or the risk that monetary policy could again become constrained by the zero lower bound, a few participants suggested that further study of potential alternative frameworks for the conduct of monetary policy such as price-level targeting or nominal GDP targeting could be useful.”
Since The Fed hiked rates in December at Yellen’s last stand, there has only been one major asset winner…
Gold Futures are up 9 days straight – has not been a longer winning streak since July 2011 (right before the USA ratings downgrade).
Also notable, while financial conditions did tighten modestly after the last rate hike, they have eased back to unchanged from the rate hike now…and the curve has collapsed…
Which suggests the rate hikes will keep coming… March rate hike odds are at 66%…
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