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Free AccessMNI China Daily Summary: Wednesday, December 11
**MNI 5 THINGS: FOMC Minutes Should Clarify Statement Changes
--5-Things To Look For In Thursday's FOMC Minutes
By Sara Haire
WASHINGTON (MNI) - The large number of changes in the June FOMC statement
left market participants looking for some clarification. Statements from Fed
officials since that meeting have not been much help, with varying views on a
wide array of issues. The minutes from the June meeting, which are scheduled to
be released later Thursday, may give more insight into where participants stand.
Here are 5 things to look for in the upcoming minutes:
- When the Federal Open Market Committee met in June, tariffs and
retaliatory tariffs had not been in full effect, but the potential change in the
outlook was likely discussed and could be reflected in the minutes. Since the
June meeting, there have many changes in the US trade policy, which the FOMC may
or may not have foreseen. However, recent comments by Fed Chair Jay Powell and
Governor Randal Quarles suggest that trade policy is not in their purview, and
Quarles added that the effects of tariffs so far have been relatively small.
Despite this reassurance, Atlanta Fed Bank President Raphael Bostic noted
business contacts have shifted away from earlier optimism for the outlook to
concern over trade policy.
- There may have been some discussion of the potential positive impact of
the fiscal stimulus (as seen by an uptick in the forecast for 2018 GDP growth),
but also some concern that this boost will be temporary and will subside in 2019
and 2020. The June statement updated the Fed's view of the economy to growing at
a "solid rate" from a "moderate rate." While fiscal stimulus is likely to affect
the outlook for the near-term, policymakers have voiced their concern over the
effects in the longer-run and how this may shape their outlook. On Thursday, St.
Louis Federal Reserve Bank President James Bullard reiterated that he does not
want the Fed to raise rates permanently while this growth is set to be
temporary.
- The removal of forward guidance language was widely anticipated in the
lead up to the June meeting, however the extent to which it was removed still
left some surprise. Chairman Powell downplayed the removal of language that said
that the funds rate target will remain below the long run rate for some time,
noting it was not meant to convey a change in policy direction, but rather that
the economy is able to withstand continued gradual rate increases. The minutes
could also show some debate from participants on keeping the "stance of monetary
policy remains accommodative" language even as the SEP showed an additional rate
hike this year.
- The rate outlook in the SEP showed a 3.1% rate at the end of 2019, past
the longer-run target of 2.9% that is considered to be "neutral." A few
policymakers have voiced their concern about raising rates past neutral while
others, like Atlanta Fed Raphael Bostic, have said that they don't necessarily
want to stop raising rates before hitting neutral. The question then
remains--where is neutral and how far past neutral is the Fed willing to go.
Given that the statement said that monetary policy remains accommodative, the
issue of just how much accommodation is left to give before hitting neutral and
whether some participants expect a slowdown or a speed up in rate increases will
probably be a talking point within the minutes from the June meeting.
- The flattening of the yield curve continues to be at the forefront
surrounding discussions over whether the Federal Reserve should continue to
raise rates which could cause the yield curve to invert. June meeting minutes
may address the yield curve inversion in more depth considering the FOMC's
decision to raise rates again and a projection for another two rate hikes this
year. Some officials, such as NY Fed President John Williams and St. Louis Fed
President James Bullard have contended that an inverted curve has often preceded
recessions and should be considered careful, while others such as Powell and
Governor Lael Brainard have suggested it is only one of many factors to watch.
Also, the historically low term premia has also been noted as a possible reason
for why an inverted yield curve may not be as alarming.
--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com
[TOPICS: MAUDR$,MAUDS$,MMUFE$,M$U$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.