FOMC minutes showed confident face of Fed - Rabobank

Philip Marey, Senior US Strategist at Rabaobank, explains that the minutes of the March meeting showed a confident FOMC that saw the economy develop in line with its December projections and therefore decided to deliver the first of three hikes implied by those projections.

Key Quotes

“Moreover, the March projections were not that much different from December and still hinted at three hikes in 2017. Most participants continued to view fiscal policy as an upside risk to the projections, although several participants now did not anticipate meaningful fiscal stimulus to occur before 2018. What’s more, participants generally viewed the downside risks associated with the global economic outlook, particularly those related to the economic situation in China and Europe, as having diminished over recent months. As we suspected, the FOMC was not concerned about the Atlanta Fed’s low nowcast for Q1 GDP growth (0.9%) because of residual seasonality.”

“While the cautious tone of the minutes of the previous meeting has gone, some participants saw downside risks from other government policies, such as those affecting immigration and trade. Also, a number of participants noted downside risks to their projections if financial markets were to experience a significant correction. Participants also mentioned potential developments abroad that could have adverse implications for the US economy.”

“In anticipation of further hikes this year, the FOMC started to discuss its reinvestment policy. Most participants anticipated that a change to this policy would likely be appropriate later this year. They also discussed the pros and cons of a tapering of reinvestments versus ending them all at once. Most participants agreed that the target range for the federal funds rate should be the primary means for adjusting the stance of monetary policy.”