18 Feb 2016
FOMC minutes can be read through a dovish lens - BBH
Research Team at BBH, suggests that the FOMC minutes can be read through a dovish lens, but this really shouldn’t come as any shock.
Key Quotes
“Global financial market instability was clearly a concern for the Fed last month. To wit: “Participants judged that the overall implications of these developments for the outlook for domestic economic activity was unclear but they agreed that uncertainty had increased. Many saw these developments as increasing the downside risks to the outlook.” The March 16 has long been regarded as “dead” but we cannot say the same about the June 15 meeting, which we view as very much “live.”
The Fed Funds futures strip remains too dovish, in our view. The market is pricing in less than one hike by end-2016 and slightly more than one hike by end-2017. That strikes us as too dovish when the US economy appears to have rebounded quite smartly in Q1. A couple of higher inflation prints, some decent jobs numbers, and we think the pendulum of sentiment starts swinging the other way towards pricing in more tightening.
We're already seeing some firmer data in Q1. January IP came in stronger than expected yesterday, up 0.9%. Housing starts were weaker than expected, but PPI came in higher than expected. This points to upside risks to CPI data out on Friday. Right now, consensus is 1.3% y/y for headline CPI and 2.1% y/y for core CPI. This comes on top of strong retail sales and jobs data last month (the headline NFP notwithstanding). Indeed, the Atlanta Fed's GDPNow model has Q1 growth tracking at 2.7%.”
Key Quotes
“Global financial market instability was clearly a concern for the Fed last month. To wit: “Participants judged that the overall implications of these developments for the outlook for domestic economic activity was unclear but they agreed that uncertainty had increased. Many saw these developments as increasing the downside risks to the outlook.” The March 16 has long been regarded as “dead” but we cannot say the same about the June 15 meeting, which we view as very much “live.”
The Fed Funds futures strip remains too dovish, in our view. The market is pricing in less than one hike by end-2016 and slightly more than one hike by end-2017. That strikes us as too dovish when the US economy appears to have rebounded quite smartly in Q1. A couple of higher inflation prints, some decent jobs numbers, and we think the pendulum of sentiment starts swinging the other way towards pricing in more tightening.
We're already seeing some firmer data in Q1. January IP came in stronger than expected yesterday, up 0.9%. Housing starts were weaker than expected, but PPI came in higher than expected. This points to upside risks to CPI data out on Friday. Right now, consensus is 1.3% y/y for headline CPI and 2.1% y/y for core CPI. This comes on top of strong retail sales and jobs data last month (the headline NFP notwithstanding). Indeed, the Atlanta Fed's GDPNow model has Q1 growth tracking at 2.7%.”