Fed Minutes of the FOMC Meeting suggest rate hikes are coming “fairly soon”.
Let’s check out the market reaction and how mainstream media played up the minutes.
“In discussing the outlook for monetary policy over the period ahead, 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.”
Mish Synopsis: “Rate hikes might be appropriate if something occurs and something else occurs.
How much more vague could the Fed get?
Financial Times Cites Robust Expansion
Here is Financial Times spin from Fed flags Interest Rate Rise ‘Fairly Soon’.
“Despite the background of political wrangling, the US economy has continued to see a robust expansion that many Fed policymakers think supports their median projection for three rate rises this year.”
I wonder what “robust expansion” the Financial Times refers to.
Two Years of Growth Below Two Percent
Robust in Context
The FOMC did mention robust four times.
- In the emerging market economies (EMEs), GDP growth remained robust in China but slowed elsewhere in the Asian EMEs and in Mexico, while the pace of economic contraction appeared to lessen in South America.
- Corporate bond issuance by nonfinancial firms rebounded in December to about its robust average pace of the past few years.
- Bank lending for residential mortgages was solid in the fourth quarter, and the issuance of mortgage-backed securities was robust.
- Consumer loan balances increased at a robust rate through November, with credit card loans, student loans, and auto loans all expanding at a similar pace.
Wall Street Journal Spin
The Wall Street Journal reports Fed Minutes: Officials See Rate Increases ‘Fairly Soon’.
Federal Reserve officials at their latest meeting anticipated raising short-term interest rates “fairly soon” in light of an improving economy and the possibility that the Trump administration’s proposed economic policies could push inflation up faster than anticipated.
The Fed’s communications “might be misunderstood as a commitment to only one or two rate hikes per year,” they warned.
Since the meeting, several Fed officials have sounded increasingly willing to raise rates again soon, perhaps as soon as March. Philadelphia Fed President Patrick Harker said Tuesday: “I would not take March off the table.” Dallas Fed chief Robert Kaplan said earlier this month that the central bank should move “sooner rather than later.”
Recent comments from Ms. Yellen suggest little hurry to address the balance sheet while the process of raising borrowing costs is still under way.
The Fed chief said last week she would prefer to wait until interest rates have risen further as a “buffer” against any financial volatility that could accompany the process of shrinking the portfolio.
“Once we start running off the balance sheet, it creates some drag and we want to make sure that the economy’s robust enough” and officials have enough room to cut rates if needed to respond, she told the House Financial Services Committee on Feb. 15.
Other officials, however, have shown more willingness to begin that conversation.
Boston Fed President Eric Rosengren, for instance, said Feb. 15 that shrinking the portfolio could help prevent new financial bubbles.
Market Responds with Big Yawn
The market’s reaction to March hikes is the same as I have been saying for a long time: Prove it.
Mike “Mish” Shedlock