FOMC Minutes

The FOMC minutes to the meeting where the Fed hiked for the 2^nd time in 10 years didn’t reveal any major surprises as is typical in the minutes after a meeting with a press conference. A major criticism of the last statement which included updated economic projections and dots was the Fed didn’t seem to acknowledge that a new sheriff was coming to town with all the fiscal stimulus that he was going to bring. Yellen then cited ‘uncertainty’ about what was going to be brought to the economy and the minutes today put it this way:

“participants emphasized their considerable uncertainty about the timing, size, and composition of any future fiscal and other economic policy initiatives as well as about how those polices might affect aggregate demand and supply.” The minutes however did say this, “almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years.”

The committee still went back and forth (some said this, several said that, most said…) and on inflation said this: “For some participants, the greater upside risks to economic growth, the upward movement in inflation compensation over recent months, or the possibility of further increases in oil prices had increased the upside risks to their inflation forecasts.” On the other hand, “several others pointed out that a further rise in the dollar might continue to hold down inflation.”

Also on inflation, while they barely altered their inflation estimates in coming years, they did acknowledge the sharp rise in market based inflation expectations and the “upward shift of the estimated term premium in the 10 yr Treasury yield.”

They repeated the ‘gradual’ line on raising rates but did caveat it with this: “While viewing a gradual approach to policy firming as likely to be appropriate, participants emphasized the need to adjust the policy path as economic conditions evolved.” Thus, they continue to speak out of every corner of the mouth.

Bottom line, we are dealing with a still dovish committee that even with a different voting complexion, will remain so in 2017. Thus, we got a little bit of this, a little bit of that with the end result being “the actual path of the fed funds rate would depend on the economic outlook as informed by incoming data.” Sound familiar? The market is priced fully for 2 hikes this year which continues to express the belief of how much they will continue to drag their feet in raising rates.