MNI POLICY: Fed Minutes: Higher Bar For Hikes;Patient For Data

--Top Takeaways From Minutes Of the January 29-30 FOMC Meeting

By Kevin Kastner

     WASHINGTON (MNI) - The following are the key points from the minutes of the

January 29-30 FOMC meeting released Wednesday:

     --Several participants noted that further rate hikes "might prove necessary

only if inflation outcomes were higher than in their baseline outlook," raising

the bar for further tightening. In fact, participants noted that there was less

upside pressure on inflation than in 2018, and some expressed concern that the

rate of inflation could drop below the 2% target. Still, the risks to projected

inflation were still seen as balanced.

     -- The participants agreed to the changes in the statement that shifted

toward a "patient" stance and data dependence, but noted that "if uncertainty

abated, the Committee would need to reassess the characterization of monetary

policy as "patient" and might then use different statement language." The

"patient" stance allows for more time to assess economic data, the impact of the

rate hikes to this point, and the expected slowdown in global growth.

     -- In keeping with communications over recent weeks, the minutes identify

the key downside risks as "sharper-than-expected slowdown in global economic

growth, particularly in China and Europe, a rapid waning of fiscal policy

stimulus, or a further tightening of financial market conditions." An update on

these issues could come in Chairman Powell's testimony on February 26.

     -- The staff presented a plan to the Committee suggesting that an end to

the balance sheet reduction come by the end of the year, a plan that seemed to

be endorsed by "almost all" of the participants as they suggested it should be

announced soon. However, no concrete plans were offered. It was suggested that

after the run-off has concluded, the Fed should reinvest the proceeds of

maturing MBS into Treasury securities.

     - A couple of participants noted a rise in credit spreads over recent

months, which could be a downside risk to economic growth if this trend were to

continue. The Committee agreed to monitor financial market risks over time.

     -- A few participants were concerned that the SEP projections of future

rate moves was being misinterpreted as a consensus view or a preset course

rather than a compilation of individual participant views. However, others saw

felt that these projections "are a valuable component of the overall information

provided about the monetary policy outlook."

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

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