These are the minutes from an FOMC meeting that raised economic assessments for the year the day that Q1 GDP printed at +0.1%. No big surprises from the minutes...
- *FED SAW NO INFLATION RISK IN FUELING JOB GROWTH, MINUTES SHOW
- *FOMC PARTICIPANTS SAW `NEARLY BALANCED' RISKS TO ECONOMY
- *A NUMBER OF FOMC PARTICIPANTS SAW POSSIBLE RISK IN WEAK HOUSING
- *SEVERAL FOMC PARTICIPANTS SAID LOW VOLATILITY MAY SIGNAL RISK
More of the same from the FOMC minutes - which have been carefully prescribed to reflect just enough confusion as to provide every stock bull (and bond bear) with just enough ammo to BTFD once more unto the breach. With 2 Fed speakers yesterday and 4 today, it seems the Fed is keen to interpret the minutes for everyone through the only tool they have left - communications. Volatility is a concern due to complacency; low rates have consequences; new normal terminal rate lower than historical norm; taper will proceed; doves more dovish, hawks more hawkish.
Pre-FOMC Minutes: S&P Futs 1882.00, Gold $1288, 10Y 2.54%, EUR 1.3660
From Esther George this morning:
- GEORGE: FOMC DISSENTS SHOW VALUE OF `INTELLECTUAL HONESTY'
- GEORGE SAYS GETTING OUT OF ASSET PURCHASES `UNCHARTED WATERS'
- GEORGE SAYS HAVING RATES LOW SO LONG WILL HAVE `CONSEQUENCES'
And Kocherlakota went full dovetard earlier:
- KOCHERLAKOTA SAYS FED SHOULD CONSIDER PRICE-LEVEL TARGETING
- KOCHERLAKOTA: PRICE-LEVEL TARGET SERVES AS AUTOMATIC STABILIZER
Some of the highlights. First, on inflation:
Many participants saw the recent behavior of the prices of food, energy, shelter, and imports as consistent with a stabilization in inflation and judged that the transitory factors that had reduced inflation, such as declines in administered prices for medical services, were fading. Most participants expected inflation to return to 2 percent within the next few years, supported by highly accommodative monetary policy, stable inflation expectations, and a continued gradual recovery in economic activity. However, a few others expressed the concern that the return to 2 percent inflation could be even more gradual.
On "balanced risks"
In general, participants continued to view the risks to the outlook for the economy and the labor market as nearly balanced.
On housing and mortgages:
A couple of participants noted that mortgage credit availability remained constrained and lending standards were tight compared with historical norms, especially for purchase mortgages. However, reports from some Districts indicated that real estate and housing-related business activity had strengthened recently, consistent with the solid gains in consumer spending registered in March.
On bond bubbles:
A couple of participants noted that conditions in the leveraged loan market had become stretched...
On VIX:
Two others saw declining credit spreads, particularly on speculative-grade corporate bonds, as consistent with an increase in investors’ appetite for risk. In addition, several participants noted that the low level of expected volatility implied by some financial market prices might also signal an increase in risk appetite.
And, drumroll, Russia and Ukraine:
a number of participants pointed to possible sources of downside risk to growth, including a persistent slowdown in the housing sector or potential international developments, such as a further slowing of growth in China or an increase in geopolitical tensions regarding Russia and Ukraine.
Full minutes below: