Sorry for the late review of the FOMC minutes which is the Fed’s 2nd chance of communicating a message to the market outside of the official statement and Powell press conference. Don’t mistaken these ‘minutes’ as actual minutes of what was said verbatim. Here are a few relevant points outside of the typical commentary on growth, the labor market and inflation.
Most importantly and what we already know, participants noted “significant uncertainties surrounding their economic outlooks, including those related to global economic and financial developments. In light of these uncertainties as well as continued evidence of muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate.”
I’ve said many times to insert “S&P 500” for “financial developments” because that is essentially what we’re talking about here when its cited. So the Fed is referring to “significant uncertainties” with regards to the S&P 500. What uncertainties exactly now since the S&P 500 is just off all time record highs? They also acknowledged that their jawboning which shifted policy to one that is more “flexible” is what boosted the stock market. “In their discussion of financial developments (S&P 500), participants observed that a good deal of the tightening over the latter part of last year in financial conditions (S&P 500) had since been reversed; Federal Reserve communications since the beginning of this year were seen as an important contributor to the recent improvements in financial conditions (S&P 500). Participants noted that asset valuations had recovered strongly.” Thanks Fed, high five and the parenthesis and underline are obviously mine.
While remaining “flexible”, it seems that they believe that they’ve just about reached their fed funds target but aren’t exactly sure. On one hand, “Several participants noted that their view of the appropriate target range for the fed funds rate could shift in either direction based on incoming data and other developments.” On the other, “a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year.” This is the March meeting and already “a majority of participants” see no more rate hikes even though they are now “flexible.”