FOMC minutes what can happen ???
The FOMC is usually a fairly benign announcement given that by the time it comes out, most of the Fed “speakers” have already spouted their views in the time before the release. What seems to be the main consensus is that the theme will likely revolve around data dependence and how much is required for “lift off”. Was Q1 a weather related dip?? and we are on the road to recovery?? We are hoping to at least get an insight as to what the Fed may be thinking....
On the dovish side
...whether we could see the dollar fall back from its recent bounce will depend if the if the focus is on the following;
Speculation on much lower NAIRU
Nairu is a theoretical threshold at which the economy is in balance and inflation pressures are neither rising nor falling. A jobless rate below this chokepoint in theory would create inflation pressure. The unemployment rate was 5.7% in January, still a good distance above the average 5.1% estimate.
Federal Reserve officials are paying close attention to these estimates now because the jobless rate is falling rapidly, down from 6.6% a year ago. Fed officials estimate the unemployment rate’s long-run range–which is akin to a Nairu–is between 5.2% and 5.5%. Officials will update their projections in March. Some of them are thinking about revising their estimates down, because they see unemployment falling without much evidence of inflation pressure building.
Many Fed officials want to start raising short-term interest rates before the economy reaches a point of full employment. Economists surveyed on average estimated the jobless rate will reach the Nairu threshold by the fourth quarter. But here again, estimates vary widely. Some analysts said unemployment wouldn’t reach Nairu for another three years or more. Others said it is already there. That the labor market participation rate is at an all time low does not help these calculations.
Focus is on low inflation.....
G10 GDP forcasts: G10 CPI forcasts:
Q215 Q315 Q415 Q116|| Q215 Q315 Q415 Q116
Extended discussion of risk that Q1 softness continues
chart of average hourly earnings....
On the hawkish side
High confidence that Q1 weakness was temporary and likely to be reversed due to weather related
Has the dollar retreat finally bottomed?
Wage costs and ECI
The employment cost index, which is showing signs of recovery...
Rebound in inflation expectations viewed as solidifying inflation confidence
Conveys sense that they are looking for the first window of good data to hike
BIG rebound in todays housing starts confirming that maybe the dissapointing Q1 was indeed weather related?
Since the explosion in treasury yields there have been 2 main consensuses
1. That the back up in yields is a temporary phenomenon as there has been a large unwind of flattening curve positions being taken off in Europe and that most of this is has just spilt over into the US. That Q2 GDP will likely disappoint and require something along the lines of a 4% growth in H2 to make up for it...
2. OR Inflation expectations have increased partially due to the rise in the oil price and that Q1 was mostly down to the severe weather and that everything is awesome..
There has a lot been said about the recent rally in the crude flat-price and its potential effect on inflation and therefore forward rate forcasts...I would strongly warn that to only estimate inflation expectations based on the value of crude will be a foolhardy thing to do,as there are many factors influencing the oil price.....an unchanged quota at the OPEC meeting early next month with the possibility of Iran production coming back to full swing will pressure OIL to the downside,once again effecting inflation expectations...and this chart does NOT look that bulllish..........
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