19 Feb 2015
Exaggeration in the dovish interpretation of FOMC Minutes, mid-year hike on track – BBH
FXStreet (Barcelona) - According to Brown Brothers Harriman, observers might have exaggerated in their dovish interpretation of FOMC Minutes, further expecting Fed to modify its forward guidance and keep doors open for a mid-year hike.
Key Quotes
“We have argued that the real signal from the Federal Reserve comes from its leadership: Yellen, Fischer, and Dudley. Their signal is most clear in the FOMC statement. If someone disagreed with the statement, they would dissent.”
“The minutes have a high noise to signal ratio. The statement read as if there may have been a push from the hawks to hike rates in March. The dovish tint to the minutes, we suspect, was a push back against them.”
“Since the FOMC meeting, several Fed officials have indicated that a June hike was still on the table. The international headwinds have slackened since the FOMC meeting.”
“For one, Fed officials, like all of us, have learned that the German and Japanese economy appear to have grown faster than the US in Q4 14. A resolution to the existential issue posed by Greece will be resolved by the time the Fed meets next month."
“Also, since the Fed met in January, they have seen the continued improvement in the labor market, including a recovery in average hourly earnings.”
“Some are concerned about the slowing of the US economy in Q4 and so far in Q1. However, this too should be kept in context of 1) well above trend growth in April-September and 2) the combination of labor force growth and productivity, which suggests trend growth is in the 2.00-2.50% area rather than above 3% as it was understood prior to the crisis.”
“Yellen's testimony before Congress next week is the next important event for insight into Fed-think.”
“In the meantime, we still expect the Fed to modify its forward guidance and to shift away from the date-specific "patience" that will keep the door open to a mid-year hike.”
Key Quotes
“We have argued that the real signal from the Federal Reserve comes from its leadership: Yellen, Fischer, and Dudley. Their signal is most clear in the FOMC statement. If someone disagreed with the statement, they would dissent.”
“The minutes have a high noise to signal ratio. The statement read as if there may have been a push from the hawks to hike rates in March. The dovish tint to the minutes, we suspect, was a push back against them.”
“Since the FOMC meeting, several Fed officials have indicated that a June hike was still on the table. The international headwinds have slackened since the FOMC meeting.”
“For one, Fed officials, like all of us, have learned that the German and Japanese economy appear to have grown faster than the US in Q4 14. A resolution to the existential issue posed by Greece will be resolved by the time the Fed meets next month."
“Also, since the Fed met in January, they have seen the continued improvement in the labor market, including a recovery in average hourly earnings.”
“Some are concerned about the slowing of the US economy in Q4 and so far in Q1. However, this too should be kept in context of 1) well above trend growth in April-September and 2) the combination of labor force growth and productivity, which suggests trend growth is in the 2.00-2.50% area rather than above 3% as it was understood prior to the crisis.”
“Yellen's testimony before Congress next week is the next important event for insight into Fed-think.”
“In the meantime, we still expect the Fed to modify its forward guidance and to shift away from the date-specific "patience" that will keep the door open to a mid-year hike.”