The March minutes clearly reveal the reason for the dovish shift of the committee at the time of the March meeting. Although the committee’s baseline outlook for the US economy was fundamentally unchanged, it clearly saw global economic and financial developments as tilting risks sharply to the downside.
This assessment of risks, combined with the downward revision to the longer-run level of the policy rate, argues for patience. However, the FOMC chose not to use these reasons at the time of the meeting. Instead, Chair Yellen, in her post-meeting press conference, argued that the lower path of rate hikes projected by market participants was exactly offsetting “some deterioration in the global economic outlook” and that, therefore, the committee chose not to raise rates and to lower their own assessment of the appropriate path of policy.
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To our read, this dissonance between the statement, the minutes, and the Chair’s speech implies that the hawkish end of the committee may be wielding increasing influence over the committee. At this moment, that contingent seems to be influencing communication. We are uncertain if this influence will strengthen sufficiently to influence policy.