Don't Overthink The FOMC Minutes, Goldman Suggests: "There Were No Surprises"

While everyone tries very hard to read between the lines of the Fed minutes with the consensus conclusion being that suddenly (as opposed to previously?) the Fed is confused about what the best exit strategy is, with words such as reverse repos thrown around for dramatic impact even though this topic has been around for nearly a year, the reality is that there was absolutely nothing market moving or material in today's report (which furthermore reduced the use of the word "weather" from 15 instances in March to just 8 in April although no mentions of El Nino just yet). Here is Goldman's FOMC minutes post-mortem confirming just this.

From Goldman's Jan Hatzius

No Major Surprises In April Minutes

BOTTOM LINE: The April FOMC minutes contained no major surprises. There was no news on the likely date of the first funds rate hike or the pace of subsequent hikes, and participants' views on the economic outlook were unchanged. Participants discussed the exit strategy and were in favor of further testing of policy tools, but no new policy decisions were made.


1. The April minutes contained no new information on the likely date of the first fed funds rate hike or the pace of subsequent hikes.

2. Participants discussed the exit strategy in a joint meeting of the FOMC and the Board of Governors, but emphasized that this was intended as "prudent planning" and not an indication that normalization would begin soon. Participants were in favor of additional testing of tools including the term deposit facility, but did not make any new policy decisions with respect to the exit strategy. "A number of participants" suggested providing more information about how long reinvestment of Treasuries and MBS will last.

3. "A number of participants" expressed concern that the slowdown in the housing sector could prove persistent. "A couple" of participants specifically mentioned tight lending standards as a concern for the housing market, in line with comments by Fed Chair Janet Yellen during the March press conference.

4. Participants discussed research on the relationship between labor market slack and inflation at length. "A number" of participants argued that the unemployment rate currently understates total labor market slack and "expressed skepticism about recent studies suggesting that long-term unemployment provides less downward pressure on wage and price inflation than short-term unemployment does." The staff noted that wage growth, import prices, and commodity prices remain soft, and both "most participants" and the staff continued to forecast that inflation will require a few years to return to the 2% target.

5. The Fed staff did not make any major changes to the medium-term economic forecast and continued to view weakness in the early part of Q1 as transitory and largely owing to the unusually cold and snowy winter weather. Participants did not materially change their views on the economic outlook from March either.

6. Participants discussed financial stability concerns, but were generally not concerned about risks from financial imbalances


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