MNI 5 Things: FOMC Minutes to Confirm Inflation Progress

By Jean Yung

     WASHINGTON (MNI) - The Federal Open Market Committee's policy statement at

the close of its May gathering offered little new information on the projected

future path of U.S. interest rate hikes, but the minutes of the meeting may give

more color on the latest discussion around inflation. The following are five

things to look for: 

     - Any signal regarding a widely expected interest rate increase at the

upcoming June FOMC meeting, as well as whether the committee will revise up its

2018 rate forecast to four hikes from three in the March Survey of Economic

Projections. Markets have already priced in another 60 basis points in Fed hikes

by year-end, according to CME Group. However, further out, markets are

underpriced relative to the Fed's outlook but seem to be positioning for a more

hawkish shift ahead of June. 

     - Details of the discussion around changes to the inflation language in the

statement, especially the committee's emphasis on the "symmetric" target as well

as the decision to drop the phrase that the FOMC is "monitoring inflation

closely." The minutes should confirm what many policymakers have said publicly

since the May meeting, that inflation is rising toward their target and that

they do not intend to overreact to a modest overshoot of inflation. The minutes

could shed light on how much and for how long participants would tolerate

above-target inflation. 

     - Further discussion over financial market conditions, including the

implications of an inverted yield curve, higher equities and U.S. dollar.

Policymakers in December and January noted it would be important to continue to

monitor the effects of policy tightening on the slope of the yield curve due to

the strong association between past yield curve inversions foreshadowing an

economic slowdown. As the Fed continues to raise rates, pushing short-term

yields higher, the risk of an inversion could grow. 

     - Official thinking regarding changes to the FOMC's forward guidance as

monetary policy approaches a neutral stance from being accommodative. Incoming

New York Fed President John Williams, among others, have indicated that the

statement language will need to change as policy hits that key turning point,

perhaps in a more fundamental way than tweaks to phrasing. 

     - Ongoing debate over the longer run policy framework, including new ideas

on inflation targeting and balance sheet policy. 

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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