FOMC Speak: March 14-15th FOMC minutes come this week - Nomura

Analysts at Nomura noted that the FOMC minutes for the 14-15 March FOMC meeting will be released on Wednesday. 

Key Quotes:

"Chair Yellen mentioned at the post-meeting press conference that the decision to raise short-term rates in March “does not represent a reassessment of the economic outlook or of the appropriate course for monetary policy.” Consistent with her statement, the FOMC participants’ economic forecasts as well as policy rate projections did not change materially from the December meeting. 

Although many FOMC participants spoke publicly this week, most expect a few more hikes this year, indicating that the consensus-like view on the number of hikes within this year appears to be three (two additional hikes). By contrast, over the past two years, the Fed’s plans for rate hikes at the beginning of each year were hindered by a series of negative shocks, such as the plunge in Chinese stock prices, Brexit, and a sharp appreciation of the USD. 

So far this year there has been an absence of large negative shocks. In this regard, it will be interesting to see the language in the minutes regarding risks and uncertainty. One of the major language changes to the post-meeting statement was the inclusion “symmetric inflation goals.” During the press conference, Chair Yellen explained the intention to incorporate this phrase as an indication that 2% target is not a ceiling, but allows a short-term overshooting of inflation. 

Chicago Fed President Charles Evans later said that 2.5% inflation “for a time” would be consistent with the symmetric goal. Given that core PCE inflation has been getting close to 2%, the minutes could give more information on the degree to which the Fed can tolerate an overshoot of inflation. Last, we could glean some information on the Fed’s plan for its balance sheet. 

At the January meeting, the FOMC participants agreed that they should begin discussions “at upcoming meetings” about the economic conditions that could warrant changes in the existing policy of reinvesting proceeds, as well as how those changes would be implemented and communicated. At the press conference following the March FOMC meeting, Chair Yellen said the economic conditions that could trigger changes to balance sheet policy are qualitative rather than quantitative. In other words, the timing of changing the Fed’s reinvestment of maturing securities is a function of not only the level of the policy rate but also the balance of risks and confidence in their economic outlook. 

That said, this week, several participants have said that they expect the Fed to start reducing its balance sheet sometime this year. The minutes may provide important information on how close we are to changes in balance sheet policy."