FOMC Minutes Show "Considerable Uncertainty" About Trump Impact On Economy

Tyler Durden's picture

Since The Fed decided unanimously to hike rates in mid-December, bonds, banks, and bullion are best but the broad stock market is lower. The key area of today's minutes was on the impact of Trump's policy agenda (which was the focus of Yellen's press conference), and they did note that there were "upside growth risks from fiscal policy" and this might mean Fed "needs to raise rates faster."


However, the biggest concern appears to have been uncertainty resulting from Trump's fiscal policies: "Many participants emphasized that the greater uncertainty about these policies made it more challenging to communicate to the public about the likely path of the federal funds rate."

Almost all Fed officials meeting on December 13-14 said the risks of growth surpassing their forecasts had grown because of the possibility of more “expansionary” fiscal policy under president-elect Donald Trump and the Republican-controlled Congress.  On the other hand, the FOMC stressed that it was too soon to jump to firm conclusions about what fiscal policy would actually look like. “Participants agreed that it was too early to know what changes in these policies would be implemented and how such changes might affect the economic outlook."

The Fed on December 14 raised short-term rates for only the second time in a decade and predicted a quicker speed of tightening this year compared with the one-a-year pace in 2015 and 2016. Speaking after the meeting, Janet Yellen, the Fed chair, said the Fed was existing in a “cloud of uncertainty” as it weighs the possibility of tax and spending changes under the new Congress and administration.

Among the Minutes' highlights was that about half of FOMC’s participants incorporated assumption of more expansionary fiscal policy into their forecasts made at Dec. 13-14 meeting.

  • Participants emphasized “considerable uncertainty” about timing, size, composition of any future fiscal and other economic policy initiatives
  • Several said that economic growth might turn out to be faster or slower than expected, depending on mix of tax, spending, regulatory and other changes
  • Almost all indicated that upside risks to their forecasts for growth had increased as result of prospects for more expansionary fiscal policies in coming years
  • Many stressed need to continue to weigh other risks and uncertainties

Key highlights from the report:

On the risk of precommitting to rate hikes:

A couple of participants expressed concern that the Committee’s communications about a gradual pace of policy firming might be misunderstood as a commitment to only one or two rate hikes per year; participants agreed that policy would need to respond appropriately to the evolving outlook.

On general economic forecasts and uncertainty about the future:

In their discussion of their economic forecasts, participants emphasized their considerable uncertainty about the timing, size, and composition of any future fiscal and other economic policy initiatives as well as about how those polices might affect aggregate demand and supply. Several participants pointed out that, depending on the mix of tax, spending, regulatory, and other possible policy changes, economic growth might turn out to be faster or slower than they currently anticipated.

On consumer spending:

Participants cited a number of factors likely to support continued moderate gains in consumer spending. Consumer confidence remained positive. The outlook was for further solid gains in jobs and income, and household balance sheets had improved. The personal saving rate was still relatively high, and household wealth had been boosted by ongoing gains in housing and equity prices. In the housing market, recent data on starts and permits for new residential construction suggested a firming in residential investment after two quarters of decline.

On upside risks:

Almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years.

On the downside risks, which once again include international developments:

The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff’s assessment that monetary policy appeared to be better positioned to offset large positive shocks than substantial adverse ones. In addition, the staff continued to see the risks to the forecast from developments abroad as skewed to the downside.

More on downside risks due to policy uncertainty:

[Policymakers] pointed to a number of risks that, if realized, might call for a different path of policy than they currently expected. Moreover, uncertainty regarding fiscal and other economic policies had increased. Participants agreed that it was too early to know what changes in these policies would be implemented and how such changes might alter the economic outlook. It was also noted that fiscal and other policies were only some of the many factors that could influence the economic outlook and thus the appropriate course of monetary policy.

On the impact of Trump tax cuts:

Yields on general obligation bonds rose somewhat more than those on comparable-maturity Treasury securities over the intermeeting period, reportedly reflecting expected reductions in the tax benefit of municipal bonds.

On the rising dollar:

Many participants noted that the effects on the economy of such policy changes, if implemented, would likely be partially offset by tighter financial conditions, including higher longer-term interest rates and a strengthening of the dollar.

On the market:

Available reports suggested that earnings for firms in the S&P 500 index increased in the third quarter on a seasonally adjusted basis, and the improvement in earnings was broad based across sectors

On the impact of rising asset prices:

The personal saving rate was still relatively high, and household wealth had been boosted by ongoing gains in housing and equity prices.

On the unemployment rate and lack of productivity:

Many participants judged that the risk of a sizable undershooting of the longer-run normal unemployment rate had increased somewhat and that the Committee might need to raise the federal funds rate more quickly than currently anticipated to limit the degree of undershooting and stem a potential buildup of inflationary pressures. However, with inflation still below the Committee’s 2 percent objective, it was noted that downside risks to inflation remained and that a moderate undershooting of the longer-run normal unemployment rate could help return inflation to 2 percent.

On unemployment by race:

The unemployment rates for African Americans, for Hispanics, and for whites all declined in recent months. The unemployment rates for African Americans and for Hispanics remained above the rate for whites but were close to the levels seen just before the most recent recession.

On corporate bond issuance:

The credit quality of nonfinancial corporations remained solid. The volume of corporate bond rating downgrades in October and November outpaced that of upgrades but was moderate compared with rates seen in the first half of the year. Default rates and expected year-ahead default rates for nonfinancial firms declined modestly over the intermeeting period, although both remained somewhat elevated compared with their ranges in recent years. Indicators of supply and demand conditions for small business credit were generally unchanged over the past quarter, with demand appearing to remain weak.

* * *

As a reminder, The Fed's outlooks for growth, inflation, and unemployment were largely unchanged in December from September. That suggested that unlike markets, the Fed did not turn much more bullish after the election, but that appears to have changed in the post-meeting minutes.

Did we get any clarity on?

  • On hold until June? - Could be sooner
  • Response to fiscal plans? - Definite concerns
  • Inflation heating up? - Questionable due to USD strength
  • Mission accomplished on jobs? - yes and expect to overshoot

*  *  *

NOTE: 2Y Yields were at 1.234% before the minutes.

Financials are up but the broader market is down post-Fed with bonds and bullion best...


The market remains unconvinced at The Fed's hawkisheness, seemingly pricing a May/June hike and a September hike as most likely (and no 3rd hike)..


Full Minutes below (link):

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SallySnyd's picture

Here is an article that explains one of the key reasons why the Federal Reserve’s interest rate policies have been far less effective since the Great Recession:


This suggests that the Fed is likely to have even greater difficulties prodding the economy back to life after the next recession.

Looney's picture


Translation: We have to raise rates. We are fucked. Last person out of the Eccles Building, turn off the lights.  ;-)


Serfs Up's picture

So...jam the """markets""" higher then?

Pinto Currency's picture

At some point the market reacts as rates spike higher.
Most important, blame Trump.

cheka's picture

great job at financial repression...keeping them and theirs access to zero percent money for years

a lot of people outside of nyc became dead or broke along the way.  but like albright said:  worth it

TeethVillage88s's picture

Maybe Trump will get around to limits on usury, limits on Credit Card charges and Interest... I mean since rates are going up.

Going to be like Cheech and Chong LP, Things are Tough all Over.

pitchforksanonymous's picture

Why do I keep envisioning the Fed as Lucy holding a football? Charlie Brown falls for it everytime.


They're already talking about raising rates 4 days in?? LOL. They were gonna raise rates 4 times last year. Mmm hmm.



TeethVillage88s's picture

Overall, financial stability risks remain in a medium range. Four themes stand out: the potential for disruptions in the global economy to affect U.S. financial stability; risk-taking amid low long-term interest rates; risks facing U.S. financial institutions; and challenges to improving financial data.

So Black Swan is still the thing.

Osmium's picture

This should be the last peice of news needed to push the DOW over 20k.  Rate hikes (as well as any other news) are BULLISH!

buzzsaw99's picture

the fed, the cia, etc., are all democrats

Jackagain's picture

And especially the IRS...

buzzsaw99's picture

yep. there needs to be a big purge of all the bureaucracies.

Jackagain's picture

We'll soon see it Trump drains the swamp or if he's a fake.....

Jackagain's picture

The Fed always does it this way. They wait too long to raise rates, then they raise them too fast and too high. That way their pals at GS & JPM can clean up with the inside info. Wash, rinse, repeat....

cheka's picture

fisrt by inflation, then by deflation..

TeethVillage88s's picture

Good raise the rates already.

9 years or more going back to 2002 of low interest rates 14 years... No interest on savings for fixed income people, disabled, retired, elderly.

Fat corporations inflating food, education, housing, transportation, health care.

Now fast food is like $10 bucks in the cheap places in USA. At least you can find some value items even if soft drinks are over $1.50. But the food ain't great. Truck stop charges like $2 for a soft drink at the fountain.

Plenty of inflation out there if you look.

HokumYTrader's picture
HokumYTrader (not verified) Jan 4, 2017 2:19 PM

Debt and dow 20 here we come

moneybots's picture

What is the POLITICAL reason that the FED is concerned now, when they were not concerned while Obama was President?

LawsofPhysics's picture

Totally fucked the average american taxpayer...

all by design...

The Fed has facilitated the single greatest transfer of real wealth (i.e. OWNERSHIP and TITLE of productive capacity and real assets) into the hands of the 0.01%...

Nothing changes until retribution is paid.

In the meantime, enjoy feudalism 2.0.

TeethVillage88s's picture

I guess in the Middle East Pirates used to charge Tribute or raid ships and hold crews hostage.

And the Knights Templar charged Tribute.

What is the difference between Taxes, Fees, Mandatory utility service and Monthly charges, Interest on Credit/Debt, Tribute, and Retribution Paid?

And can we charge Al Gore a Window Tax?

you enjoy myself's picture

So, in a nutshell, the Fed was underpinning Obama's crappy policies by printing trillions and handing out money at 0% for the entire 8 years.  Now, because Trump will not have crappy policies, the Fed feels the need to remove the artificial life support.    Which will of course dampen the effects of Trump's pro-growth policies to the point where the outcomes of both administrations will appear to be similar.

And the Fed normalizing rates is badly needed; not complaining about that.  We've been at ludicrous speed for way too long and this bubble is massive.  But politicians and media are going to trumpet things like GDP and the UE rate and pretend that, see, Obama's policies were good!  Except that it's akin to two guys with the same 100meter time, and failing to mention that one guy was given rocket boosters and the other guy had to lug a cinderblock.


Jackagain's picture

It's not nice to fool with the Illuminati....

HokumYTrader's picture
HokumYTrader (not verified) you enjoy myself Jan 4, 2017 2:46 PM

Trump has embraced Obozo's bubble, he is the ultimate bag holder

khakuda's picture

May need to raise rates faster!  Hahahaha.  Faster than what???  Money market accounts still pay ZERO and we are in 2017!  Real estate peaked in 2005, stocks bottomed by early 2009.  Rates should be nowhere near current levels.  Even Greenspan was only stupid enough to leave rates at 1% for 3 years before raising them.  These clowns are only at .50% and spend more time talking about raising than actually raising.  How big a bubble do you want to build?  Equity prices have appreciated faster than earnings every single year since 2008.  Homes are getting unaffordably expensive again.

These could be the dumbest people in all America.

ne14truth's picture

Unless it was their intent to cause trouble.....they make their money on the way up and way down.....when up looses its profit for them they have to turn it down to keep taking our money from us.

Snaffew's picture

if they raise rates much further, then the only countryu buying US treasuries will be the US.  We have to print money just to pay the interest on our debt.  If rates go up significantly, then we will become a third world nation.

moneybots's picture



What upside risks to growth? The FED was complaining that the monetary side was doing the pulling. Now they are complaining about expansionary fiscal policy? What is the POLITICAL reason?

HokumYTrader's picture
HokumYTrader (not verified) Jan 4, 2017 2:29 PM

Draghi and Kuroda will pick up the slack, stawks to da moon

HokumYTrader's picture
HokumYTrader (not verified) Jan 4, 2017 2:31 PM

They are waiting for negative VIX to raise rates

trillion_dollar_deficit's picture

What the fuck ever.

After almost a decade of zero rates, this economy is so addicted to them that all increases have a 3-4x multiplier of rate increases in the past. Raising rates at a higher clip would completely nuke the economy very quick. Everybody and their grandma knows it. We may make it as high as 1% which would effectively be 3% or 4%. And then we'll quickly get back down to ZIRP4EVA. 

Snaffew's picture

In other words...the Fed has no clue where the conomy is going nor what they are going to do with rates.  once the long overdue market correction and/or bear market commences, i'd say we have a pretty good shot at QE IV massive stimulus coming in and a rate cut.  This will hogtie a lot of the infrastructure plans as the trillion dollars earmarked for that will go into saving the stock market.  Trump's grand infrastructure stimulus will turn out to be a few bridges and roads---certainly not the "make America great again" podium speech he was preaching.  It's not his fault...saving the stock markets and preserving the illusion of wealth and perpetuating the viability of the nations pension programs is of upmost least in the eyes of the fed and the deep state.

wisebastard's picture

oh yeah.....blame Trump......not the QE....Now wait a minute....what is QE.....very simple.....QE is what caused the 2008 crisis........only lots more of it

wisebastard's picture

I made a meme of a Lion smiling and it says....Only you can prevent Fake News.....and at the bottom it says...Trust me I'm a lion...........just pretend i inseted it here ....Thanks!

wisebastard's picture

raising the cost of throwing darts has got the fed sweating DHS bullets.........

MrSteve's picture

First, the market was sold off because Trump might win, then he won and the market roared up. Now the FED admits it doesn't know what is happening or going to happen. That is the bottom line: nobody knows what is happening. Mania and despair over the election results and now euphoria in the stock market are all symptoms of great instability with a false sense of certainty. Eurobanking liquidity and solvency with Chinese yuan revaluation risks are my top choices for incoming black swans.

Once, one Austrian bank failure was enough to spark a Wall Street panic. Now we have a continent full of bad banks and NPLs and vanishing eurodollars and yet no one sees any problems???

moneybots's picture
FOMC Minutes Show "Considerable Uncertainty" About Trump Impact On Economy


In other words, nothing has changed. The FED is always clueless.

ilovetexas's picture

You kidding me! How can that be? When was Fed certain about anything?