The following is Barclays Capital first reaction to today's FOMC minutes from the June meeting.
Altogether, the committee is confident enough in the outlook to signal the end of the purchase program more clearly, but not so much so as to provide firm guidance on the expected timing of any rate hike cycle. The committee continues to expect only modest wage growth and for inflation to remain at or below its 2% target over the forecast horizon.
We maintain our view that convergence toward the Fed’s targets will be faster than the committee expects and look for the first increase in interest rates in June 2015. The committee is gradually coming to a consensus about the exit strategy and we look for more concrete guidance by the September FOMC meeting and press conference.
No major change of course in the policy outlook. Although the committee revised down its projections for growth in 2014, most participants did this because of the weak Q1 GDP print and kept the remainder of their forward-looking estimates unchanged. Some on the committee worry about the strength of consumption and housing and express concern over market complacency and excessive risk taking. That said, most expect further improvement in labor markets and see risks to the outlook for growth, inflation, labor markets, and financial stability as broadly balanced. Consequently, assuming the committee’s outlook is realized, participants expect the asset purchase program to end with a final $15bn reduction in the pace of purchases in October, as opposed to extending the program into December. This is in line with our expectation for the conclusion of the tapering process and we expected the committee to present this guidance at its June meeting. We had thought Fed Chair Janet Yellen would provide this guidance in the press conference following the release of the statement, but she did not, leaving this communication to the release of the minutes.
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