Since the April 28th FOMC Statement, gold has been the best performing asset, surging 6%, as bonds, the dollar, and stocks are all lower...
And of course, crypto has been clubbed like a baby seal, but we note that Ethereum is still higher from the last FOMC statement...
Also of note is the fact that the market has shifted dovishly (very modestly) back towards The Fed's uber-dovish forecasts for rate-hikes...
But perhaps the most important shift in the last few weeks since the FOMC statement is the surge in overnight reverse repo usage at The Fed meaning the banks have no more space for reserves... implying an end to QE...
So, will The Fed Minutes make any mention of this impending crisis?
Of course, since the last FOMC statement, we have had major stagflationary signals with a dismal jobs print and seriously hot inflation prints which means the Minutes will be substantially stale, but is expected to show at most one or two Fed officials urging quicker action to reduce the monetary policy support rolled out last spring to help the economy through the recession triggered by the coronavirus pandemic.
Several Fed officials said this week that the central bank is closely watching economic developments after a stronger-than-expected surge of inflation last month and will be ready to shift policy if necessary.
"If we got to the point where we were comfortable on the public health side that the pandemic was largely behind us, and was not going to resurge in some way that was surprising, then I think we could talk about adjusting monetary policy," St. Louis Fed President James Bullard told reporters after a speech Wednesday.
"I don't think we're quite to that point yet, but it does seem like we're getting close."
Bloomberg U.S. Economist Andrew Husby said "a clear outline of the preconditions for a taper is unlikely in the minutes, but market participants will be watching for clues. In the more likely event a framework were to be developed this summer, an actual reduction would not start until 1Q 2022, in our view.”
Unsurprisingly, The Fed said "it will be some time before substantial progress" criteria is met,
In their discussion of the Federal Reserve’s asset purchases, various participants noted that it would likely be some time until the economy had made substantial further progress toward the Committee’s maximum-employment and price-stability goals relative to the conditions prevailing in December 2020 when the Committee first provided its guidance for asset purchases. Consistent with the Committee’s outcome-based guidance, purchases would continue at least at the current pace until that time. Many participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases. The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee’s goals. A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.
...adding that "the economy remains far from Committee's goals."
Participants observed that economic activity had picked up sharply this year, with robust gains in consumer spending, housing-sector activity, business equipment investment, and manufacturing production. They noted
that the acceleration in economic activity reflected positive developments associated with the rapid pace of vaccinations as well as continued support from fiscal and monetary policies. Nevertheless, participants generally
noted that the economy remained far from the Committee’s maximum-employment and price-stability goals
More confirmation that inflation is just "transitory"
The staff continued to view the risks around the inflation projection as balanced.
... even as some concede that supply chain collapse can lead to higher prices for longer:
A number of participants remarked that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year. They noted that in some industries, supply chain disruptions appeared to be more persistent than originally anticipated and reportedly had led to higher input costs.
Additionally, there was some optimism:
Participants assessed that risks to the outlook were no longer as elevated as in previous months.
On Taper talk...
Their discussion of the Federal Reserve's asset purchases, various participants noted that it would likely be some time until the economy had made substantial further progress toward the Committee's maximum-employment and price-stability goals
Consistent with the Committee's outcome-based guidance, purchases would continue at least at the current pace until that time
A number of participants suggested if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases
On Asset prices
“Regarding asset valuations, several participants noted that risk appetite in capital markets was elevated, as equity valuations had risen further, IPO activity remained high, and risk spreads on corporate bonds were at the bottom of their historical distribution. A couple of participants remarked that, should investor risk appetite fall, an associated drop in asset prices coupled with high business and financial leverage could have adverse implications for the real economy.”
The Fed did address IOER/RRP Administered rates
The SOMA manager noted that downward pressure on overnight rates in coming months could result in conditions that warrant consideration of a modest adjustment to administered rates and could ultimately lead to a greater share of Federal Reserve balance sheet expansion being channeled into ON RRP and other Federal Reserve liabilities.
Although few survey respondents expected an adjustment to administered rates at the current meeting, more than half expected an adjustment by the end of the June FOMC meeting.
Participants judged that the Committee's current guidance for the federal funds rate and asset purchases was serving the economy well.
Participants also noted that the existing outcome-based guidance implied that the path of the federal funds rate and the balance sheet would depend on actual progress toward reaching the Committee's maximum-employment and inflation goals.
Some participants emphasized that an important feature of the outcome-based guidance was that policy would be set based on observed progress toward the Committee's goals, not on uncertain economic forecasts.
A couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.
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Read the full Minutes below: