Goldman's Take On The FOMC Minutes

As usual, to get the best take on the Fed's minutes, it pays (metaphorically) to listen to those who actually set them...

From FRBNY Bill Dudley's successor, Jan Haztius:


1. Minutes from the April 26-27 FOMC meeting were broadly in line with expectations—Fed Chairman Bernanke’s post-meeting press conference having already revealed many details. Comments on the outlook largely mirrored forecast changes presented at the press conference, and showed greater uncertainty about both growth and inflation. The language used in the minutes suggests that upside inflation risks were a slightly greater concern to the committee at the time of the meeting. In particular, the minutes said that “Many participants had become more concerned about the upside risks to the inflation outlook.” In contrast, on activity the minutes said “Although most participants continued to see the risks to their outlooks for economic growth as being broadly balanced, a number now judged those risks to be tilted to the downside.” Since the meeting, commodity prices have declined and incoming activity data has remained relatively soft. Perceptions about the relative risks around growth and inflation may therefore have shifted.

2. With regard to the policy outlook, the committee was evenly balanced. The minutes said that “some participants expressed the view that in the context of increased inflation risks and roughly balanced risks to economic growth, the Committee would need to be prepared to begin taking steps toward less-accommodative policy”. However, others disagreed: “some participants indicated that … an early exit could unnecessarily damp the ongoing economic recovery”. In our view, the latter is likely closer to the sentiment of the committee leadership.

3. The committee also discussed exit strategy issues in detail at the meeting. A few points of uncertainty were clarified. First, the Fed will cease reinvestment of its securities portfolio as a first tightening step. Second, the committee will also stop reinvesting principal payments in its Treasury portfolio “soon after” stopping MBS reinvestment. Third, any sales of securities will come after rate hikes—as originally signaled by Chairman Bernanke in Congressional testimony last year.


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