March rate hike odds are unchanged (below 40%) and the yield curve has flattened since The Fed’s February statement (despite heavy jawboning and higher inflation data) and so the Minutes were expected to help ease the markets to not be surprised. And they were… MANY FED OFFICIALS SAW HIKE `FAIRLY SOON’ IF ECONOMY ON TRACK. However, the Minutes also showed ‘balance’ by not proclaiming concern over inflation – *MANY FED VOTERS SAW ONLY MODEST RISK OF SIGNIFICANT INFLATION and FED OFFICIALS SAW DOWNSIDE RISKS FROM FURTHER DOLLAR STRENGTH.
Here is the key excerpt in which the Fed says a rate hike may be needed “fairly soon” if all goes according to plan…
key segment many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the Committee’s maximum-employment and inflation objectives increased.
However in a surprising twist, some Fed members explicitly warned that the market has gotten ahead of itself and that Trump’s fiscal policies may never materialize…
A few participants commented that the recent increase in equity prices might in part reflect investors’ anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which might not materialize.
The Fed also warned once again that “valuation pressures have risen” since the election:
This post was published at Zero Hedge on Feb 22, 2017.
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