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Here Are The Fed Minutes: Take Them To Your Palm Reader

ALMOST ALL FED OFFICIALS EXPECTED INFLATION TO RISE TO 2% GOAL SOME FED OFFICIALS SAW APPRECIABLE RISK INFLATION TO LAG TARGET

Ok, hopefully you read the instruction manual on the January Fed minutes, because trading this could be hazardous depending on how predisposed you are to making potentially rash decisions based on inherently stale information.

There’s some additional risk here because you know, all types of things have happened since the discussion outlined in these minutes took place.

But you’ll do whatever it is you’re inclined to do. All I can offer are the highlights and one thing I would note right off the bat is that there seems to be something contradictory about “almost all Fed officials expected inflation to rise to goal” and “some participants saw an appreciable risk that inflation would continue to fall short of the Committee’s objective“.

 

This is the key passage that seems to be behind the knee-jerk higher in equities:

However, some participants saw an appreciable risk that inflation would continue to fall short of the Committee’s objective. These participants saw little solid evidence that the strength of economic activity and the labor market was showing through to significant wage or inflation pressures.

Well that “evidence” has shown up since.

Decide for yourself:

Key bullet points:

  • FOMC VOTERS AGREED TO ADD WORD `FURTHER’ GIVEN STRONGER OUTLOOK
  • ALMOST ALL FED OFFICIALS EXPECTED INFLATION TO RISE TO 2% GOAL
  • FED MAJORITY: STRONGER GROWTH LIFTS LIKELIHOOD OF FURTHER HIKES
  • NUMBER OF FED OFFICIALS RAISED GROWTH FORECASTS SINCE DEC. FOMC
  • SOME FED OFFICIALS SAW APPRECIABLE RISK INFLATION TO LAG TARGET

Extended highlights:

  • “Participants agreed that a gradual approach to raising the target range for the federal funds rate remained appropriate and reaffirmed that adjustments to the policy path would depend on their assessments of how the economic outlook and risks to the outlook were evolving relative to the Committee’s policy objectives.”
    • “A number of participants indicated that they had marked up their forecasts for economic growth in the near term relative to those made for the December meeting in light of the strength of recent data on economic activity in the United States and abroad, continued accommodative financial conditions, and information suggesting that the effects of recently enacted tax changes—while still un-certain—might be somewhat larger in the near term than previously thought.”
  • “During their discussion of labor market conditions, participants expressed a range of views about recent wage developments. While some participants heard more reports of wage pressures from their business contacts over the intermeeting period, participants generally noted few signs of a broad-based pickup in wage growth in available data.”
    • “It was noted that the pace of wage gains might not increase appreciably if productivity growth remains low. That said, a number of participants judged that the continued tightening in labor markets was likely to translate into faster wage increases at some point.”
  • “Participants anticipated that inflation would continue to gradually rise as resource utilization tightened further and as wage pressures became more apparent”
    • “Several expected that declines in the foreign exchange value of the dollar in recent months would also likely help return inflation to 2 percent over the medium term.”
    • “A few participants posited that the recently enacted corporate tax cuts might lead firms to cut prices in order to remain competitive or to gain market share, which could result in a transitory drag on inflation.”
    • “Almost all participants continued to anticipate that inflation would move up to the Committee’s 2 percent objective over the medium term as economic growth remained above trend and the labor market stayed strong”
  • “Amid elevated asset valuations and an increased use of debt by nonfinancial corporations, several participants cautioned that imbalances in financial markets may begin to emerge as the economy continued to operate above potential.”
    • “It was also noted that the Committee should regularly reassess risks to the financial system and their implications for the economic outlook in light of the potential for changes in regulatory policies over time.”
  • “Members agreed that the strengthening in the near- term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate.”
    • “They therefore agreed to update the characterization of their expectation for the evolution of the federal funds rate in the postmeeting statement to point to ‘further gradual increases’ while maintaining the target range at the current meeting.”

Full minutes:

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