FOMC minutes in the limelight - Nomura

According to the analysts at Nomura, in the 31 January-1 February FOMC meeting, the Committee kept the target range for the federal funds rate at 0.5-0.75% on the expected lines with no substantive changes to the language on monetary policy.

Key Quotes

“However, there were some modest changes to the economic conditions and economic outlook paragraphs. In particular, the language on the causes of disinflationary pressure was removed. Given the recent firming of core goods prices suggested by the CPI report, it will be interesting to see how the FOMC assessed the lingering impact from the lower energy prices and strong dollar in the past on inflation. If FOMC participants have become confident that these transitory factors have sufficiently diminished and goods prices will likely continue to increase, this confidence could have some implications for the future path of monetary policy.”

“Elsewhere, we think reinvestment policy was likely on the agenda at this meeting, and the minutes should tell us if this was true, although Yellen’s recent remarks suggested that the Fed is unlikely to start reducing the Fed’s balance any time soon. In addition, any discussion on the timing of the next rate hike should gain attention from the markets.”

“Lastly, there could have been an active debate on the degree of accommodation and, hence, the level of the neutral interest rate. There was a subtle change in language in the Semiannual Report on Monetary Policy testimony to the Senate. Chair Yellen stated in her speech on 19 January that "The Committee judges, however, that the stance of monetary policy remains modestly accommodative." By contrast, during this testimony, she omitted “modestly” and said “... our view that US monetary policy remains accommodative.” Although subtle, this change suggests that the FOMC believes rates will have to be raised further to get policy back to a neutral stance. We think the minutes should confirm if this change was deliberate and is indeed a hawkish signal.”