FOMC Minutes: Only ‘a few’ seem ready to hike in March
|Only a few FOMC members seem ready to hike in March
• As expected, we did not get much new from the FOMC minutes,as many FOMC members have already expressed their views since the meeting, not least Fed Chair Janet Yellen in connection with her semi-annual hearing in Congress.
• The FOMC members think the economy continues to improve but that Trumponomicsmake the outlook more uncertain. ‘Uncertain’ was mentioned 14 times in the minutes (versus 15 in December despite the hike and just five in November).
• Although ‘many participants’ expect a hike ‘fairly soon’, only ‘a few participants’ expect a hike ‘at an upcoming meeting’. This supports our view that a March hike is unlikely. The Fed can afford to stay patient for now due to the strong USD, which puts downward pressure on import prices, and PCE core inflation, which continues to run below 2% target.
• We still expect the Fed to hike twice this year (in June and December) with risk skewed towards a third hike. If economic indicators continue to be strong and we get more information on Trumponomics, we cannot rule out a May hike.
• As the Fed has communicated it wants to offset more expansionary fiscal policy, the Fed may increase its hiking pace in the second half of the year, when we are likely to know much more about ‘Trumponomics’. Given the complicated process of passing through the necessary legislation in Congress, we do not expect any changes to economic policy before the end of Q2 17 at the earliest.
• We will listen carefully to President Donald Trump’s speech to a joint session in Congress on Tuesday 28 February, as we may get some more information about his economic plans
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