Wednesday, October 11, 2017

"Fed Minutes: December Rate Hike Depends on Inflation"

From Barron's Income Investing:
"December Fed hike not a gimme put," is the headline that Torsten Sløk of Deutsche Bank Securities put on his report on the Fed minutes.

At the September meeting of the Federal Open Market Committee, officials were in agreement that the economy is healthy, but they were mixed in their outlook for inflation.

Some members indicated they don't favor more hikes until the inflation outlook is clear. That gave the minutes a slightly dovish cast that interest rate strategists weren't expecting.

"December Fed hike not a gimme put," is the headline that Torsten Sløk of Deutsche Bank Securities put on his report. He called the minutes, "confusing and inconsistent."

Bryce Doty of Sit Fixed Income Advisors thought it was understandable. If inflation rebounds, the Fed will seem to be "behind the curve" while if it stays low and the Fed hikes, it will seem it was too aggressive. "Understandably, the minutes suggest there is not a consensus amongst Fed members on when to best raise rates again," he says.

Below is one example from the minutes of a passage with some dovish elements:
With the medium-term outlook little changed, inflation below 2 percent, and the neutral rate of interest estimated to be quite low, all participants thought it would be appropriate for the Committee to maintain the current target range for the federal funds rate at this meeting, and nearly all supported again indicating in the postmeeting statement that a gradual approach to increasing the federal funds rate will likely be warranted. Nevertheless, many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted....