What To Expect From FOMC Minutes? - Views From 15 Major Banks
The following are the expectations for today's FOMC minutes from the January meeting as provided by the economists at 15 major banks.
Goldman Sachs: The January FOMC statement was largely in line with expectations, with a marginally dovish shift in language. For today's minutes, we'll be watching for: (1) any hints regarding future use of the word "patient", (2) discussion of the potential for pass-through from the stronger dollar and falling oil prices, (3) commentary on the continued decline in market-implied measures of long-run inflation compensation, and (4) any discussion of developments in Europe.
Barclays: We expect FOMC Minutes to confirm that the majority of FOMC participants remained in favor of maintaining a baseline case of policy normalization starting around mid-year and USD supportive. We also look for clarification on the meaning of “international developments” added in the statement as one of the factors they consider for future monetary policy decision
Credit Suisse: Given the market’s interest in Fed Chair Yellen’s 24 February statement, the minutes of the 27-28 January FOMC meeting will be of great interest. Many investors will see these minutes as a draft for Yellen’s statement next week. As far as FX markets are concerned, the greatest focus will be on how much discussion there was around the topic of USD strength and “currency wars.” Till now the market has assumed that the Fed has a benign view of the impact of USD strength, a view we have agreed with . As such, while not our base case, excessive concerns about this issue in the minutes would be a USD negative that could shake up long USD positions further over the coming week. Naturally the fact that “international developments” were noted as a factor in the 28 January FOMC statement – a change from the 17 December statement – has enhanced the risk of a more drawn out discussion of this topic in the minutes.
SocGen: It would take a very hawkish Fed bias however to surprise the market, stop the positive risk mood, send short-dated yields up and support the dollar. All of that will come in due course, but probably not this evening.
BNP Paribas: The minutes of the January 28 FOMC meeting are released today and market participants will be looking for more clarity on how the Fed is balancing continued labour market improvement with falling headline inflation and “international developments”. However, markets have struggled in recent years to glean clear directional insight from the minutes given the tendency to present divergent views rather than a consensus. This particular release may also be harder to evaluate because the meeting was held before the very strong January employment report. With the market long USD heading into this release, there may be more tendency to focus on indications of concern with low inflation from some members rather than on the more upbeat observations of the hawks.
Credit Agricole: While today’s minutes are unlikely to fuel significant short-term gains, their content should further strengthen USD foundations. Perhaps more than the 28 January Fed statement itself, investors will closely scrutinise today’s FOMC minutes looking for any hints policymakers are leaning towards a stronger change in wording March 18. Already partially reflected in the renewed rise in Fed rate expectations since the last FOMC meeting, investors again appear to be anticipating this change in wording and hence Fed consensus. Should such a shift be revealed, this should solidify USD’s safe-haven credentials, seeing further inflows from more vulnerable higheryielding assets as dollar funding costs tighten. Such forces should weigh upon EUR/USD in coming weeks and similarly constrain any relief rallies stemming from any short positioning-squaring on EMU–Greek policy.
Morgan Stanley: The release of Fed minutes today should set the stage for next week’s Humphrey Hawkins. Even so we expect the Fed on hold for longer, the Fed is likely to create flexibility using the March meeting to change the interest rate statement accordingly, providing an additional boost to US bond yields.
Citi: The Fed will embrace a data dependent approach that leaves a June start to a hiking cycle firmly entrenched. USD moves are also likely to be cautious ahead of Yellen’s testimony next Tuesday. We retain our USD positive view through March on global tail risk and more explicit signals to first hike at the March FOMC.
RBS: The January FOMC minutes could shape expectations for the March FOMC decision, though the FOMC January meeting took place prior to the stellar January jobs figures being released earlier this month. The Fed did add to its January statement that it is now watching international developments as part of its assessment for the appropriate timing of the first rate hike, which may imply that the minutes may come off more dovish on the margin. Still, the broader message of the minutes and Chair Yellen’s SemiAnnual Testimony to the Congress (also called Humphrey Hawkins testimony) on February 24th will likely be that the Fed is on pace to hike the policy rate well ahead of its major peers. We think this leaves the USD well-supported and we prefer to fade USD weakness on positioning squaring.
BofA Merrill: The January FOMC minutes should give some insight into the debates among Fed officials, but they run the risk of being stale. On the one hand, the labor market has expanded even more quickly than the Fed had been expecting. On the other, disinflation continues to creep into core inflation measures. Just how the FOMC parses this dichotomy will be notable. We expect most of the Committee will embrace a flexible, data dependent approach that leaves a June start to the hiking cycle very much in play. Given market commentary and pricing, such an outcome would likely be seen as slightly hawkish. Two key premises support a June liftoff date, and we recommend keeping a close eye out for any signs of growing concern or dissent on them. The first is that the improving labor market will put upward pressure on wages and prices over time. The lack of wage growth and a lower level of the NAIRU are related factors that could warrant greater patience. The second premise is that other disinflationary forces are mostly transitory. Whether any Fed officials see more persistent risks from the further drop in breakevens or the slowing of core inflation would be noteworthy. Attention also will be given to the inclusion of “international considerations” in the statement. As we have noted previously, we see this change as reflecting a compromise on the Committee between those worried about the drag from the strong US dollar and those who see the drop in oil prices and the more aggressive easing by foreign central banks as a positive. The minutes should reveal how the Committee is weighing these various factors. Finally, we expect further discussion of forward guidance, particularly over the description of policy as “patient” and how to communicate the likely gradual path of rate hikes once liftoff occurs. However, we expect little definitive information that would signal how communication is likely to change on March, and a strong commitment to remain data dependent.
Danske: In the US, the minutes from January FOMC meeting will be released today. There has been a lot of speculation as to why the FOMC chose to include a reference to ‘international developments’ in its statement and we believe the minutes are likely to give us some answers.
SEB: The statement from the FOMC January meeting was leaning to the dovish side: as the FOMC repeated that it an be patient in stariting to raise rates, with the description of economic activity was more positive but also highlighting that market based inflation expectations had declined substantially. Yellen has defined "patient" as meaning no tightening for at least the next two meetings and in our view the likelihood of lift off before summer is very unlikely given downside risks to inflation. Obviously, it will be interesting to see how officials are weighing the stronger dollar and lower oil prices against stronger growth.
Deutsche Bank: The minutes from the January 27-28 FOMC meeting will garner significant market attention because they will give us a better sense of how concerned the Fed is about the global economy and the prospect of further disinflation. The minutes could also serve as a preview of what Fed Chair Yellen may present to Congress at her semi-annual monetary policy testimony on February 24 and February 25. The FOMC did not have the January employment report when it met last month, so if the tone of the minutes is upbeat on the growth outlook, policymakers should have even greater conviction in their forecasts given the strength in the last jobs release.
BTMU: We expect US yields to rise further in the coming months especially at the short-end of the curve supporting a stronger US dollar as the Fed remains on course to raise rates from the middle of this year. The release today of the latest FOMC minutes from their 27th -28th January FOMC meeting will be in focus to further assess the likely timing of the first rate hike. At the meeting the Fed upgraded their assessment of the US economy but noted more concern over the sharp fall in market-based inflation expectations and international developments. The minutes may prove even more backward looking than normal dampening their potential as a fresh policy signal. Fed Chair Yellen’s upcoming semi-annual testimony on the 24th February will provide a more timely update taking into account the release of the much stronger than expected non-farm payrolls report for January.
ING: The FOMC Minutes may provide some hawkish hints (ie, the Fed looking through low inflation & conditions under which the word “patient” will be omitted).
