Fed Minutes: Full Breakdown

In the lead up to the release of the Fed minutes, stocks were buoyant as was the broad dollar following Wednesday morning’s ADP beat. Meanwhile, 10Y yields exhibited a bit less enthusiasm, falling after EIA data turned out to be a bit more “supply-ish” than Tuesday’s API print seemed to presage and perhaps indicating that Japanese buyers are back in the market for USD assets especially with XCCY basis having come in or perhaps simply reflecting covering of the last vestiges of the 10Y short.

It’s also worth noting that according to traders in Chicago and London, a large position in eurodollar put spreads built on March 1 was liquidated in U.S. trading Wednesday at a loss approaching $15m. Additionally, a large block trade in the September eurodollar fly suggested traders continued to liquidate positions ahead of the minutes release.

So that was the setup and here are the notables via Bloomberg:

Following are selected excerpts from the FOMC meeting minutes that concluded on March 15:

• When the time comes to implement a change to reinvestment policy, participants generally preferred to phase out or cease reinvestments of both Treasury securities and agency MBS.
• • The staff provided several briefings that summarized issues related to potential changes to the Committee’s policy of reinvesting principal payments from securities held in the SOMA. These briefings discussed the macroeconomic implications of alternative strategies the Committee could employ with respect to reinvestments, including making the timing of an end to reinvestments either date dependent or dependent on economic conditions.
  • The briefings also considered the advantages and disadvantages of phasing out reinvestments or ending them all at once as well as whether using the same approach would be appropriate for both Treasury securities and agency mortgage-backed securities (MBS).
  • Nearly all participants agreed that the Committee’s intentions regarding reinvestment policy should be communicated to the public well in advance of an actual change. It was noted that the Committee would continue its deliberations on reinvestment policy during upcoming meetings and would release additional information as it becomes available.
• Some participants viewed equity prices as quite high relative to standard valuation measures. It was observed that prices of other risk assets, such as emerging market stocks, high-yield corporate bonds, and commercial real estate, had also risen significantly in recent months.
• With their views of the outlook for the economy little changed, participants generally continued to judge that a gradual pace of rate increases was likely to be appropriate to promote the Committee’s objectives of maximum employment and 2 percent inflation.
• • In contrast, several other participants cited evidence that some slack remained in the labor market, such as still-modest aggregate wage growth and the unevenness of wage gains across industries, an elevated share of employees working part time for economic reasons, or other broad measures of labor underutilization.
  • In contrast, participants held different views regarding prospects for the attainment of the Committee’s inflation goal. A number of participants noted that core inflation was a useful indicator of future headline inflation, and the latest reading on 12-month core inflation suggested that it could still be some time before headline inflation reached 2 percent on a sustained basis.
• Several participants now anticipated that meaningful fiscal stimulus would likely not begin until 2018. In view of the substantial uncertainty, about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections. Nonetheless, most participants continued to view the prospect of more expansionary fiscal policies as an upside risk to their economic forecasts.
• Participants generally viewed the downside risks associated with the global economic outlook, particularly those related to the economic situation in China and Europe, as having diminished over recent months.
• Although motor vehicle sales had fallen early in the year and some other components of PCE had also declined, many participants suggested that the slowdown in consumer spending in January would likely be temporary. The slowing appeared to mainly reflect transitory factors like lower energy consumption induced by warm weather or delays in processing income tax refunds.
• Nearly all participants judged that the U.S. economy was operating at or near maximum employment.
• Participants emphasized that they stood ready to change their assessments of, and communications about, the appropriate path for the federal funds rate in response to unanticipated developments.