Minutes of the Federal Reserve and Reduction of Rates Reported by Economic Risks: Rosenberg

After reading and reviewing the FOMC minutes from the last meeting in late January, my conclusion that the Fed has finished raising rates for the cycle is emboldened. Given that I see many of the depreciation risks cited by monetary leaders, I continue to believe that the next rate trend will be downward, not upward.

Here are the points to remember:

1. The Fed's economic staff and the FOMC thought at the time that growth was "solid" to end with 2018. We now know that the Atlanta Fed model has brought down the rate of growth of the Real GDP of the fourth quarter at a simple annualized rate of + 1.5%. The New York Fed for this quarter now appears to be even weaker at + 1.1%. The Fed had thought that consumer spending was still robust at the time of this meeting, but that was before the announcement of the December retail sales slide of 0.9% in December, followed by 39, a 5% drop in auto sales in January. The bottom line is that the economy was already in a deeper hole than what the Fed had expected at this meeting. This means that the output gap was less inflationary and that the need for a completely "neutral" fund rate was less obvious.
2. Staff at the Fed pointed out that the balance sheets of over-indebted companies posed a high risk to the outlook. And, keeping this in mind, much of the downward revisions to growth prospects appear to come from capital expenditures – note the word choice with "delay or delay" below.
3. The discussions at this meeting focused on controlling inflation – a fundamental surprise in the face of tense labor markets. This has not been addressed, but this may be one of the reasons why the estimate of the "neutral" funds rate over the last four months seems to have been reduced from 3% to 2.5% .
4. Risks to the economic outlook came from all parties – Brexit, China and Europe, trade, the lingering effects of tighter financial conditions at the end of last year. The decline in fiscal stimulus has also been cited as a depressing growth factor, which is baked in the cake.
5. The only upside macroeconomic risk related to the non-materialization of risks down – and they are numerous. This can not be too comforting for bulls growing.
6. The Fed insisted on "patience" and for a number of reasons … linked to a host of uncertainties, some of which may not be resolved for several months or quarters (and if negotiations on Brexit and trade were launched?).
7. I have pointed out and pointed out one of the main reasons given for "patience", which concerns the lags between what the Fed has already done this tightening cycle (the equivalent of more than 300 points basic rate hikes) and the impact on the economy – "A patient approach would have the added benefit of giving policymakers the opportunity to judge the reaction of economic activity and inflation to recent steps taken to normalize policy direction." monetary."
8. To that end, it was also interesting to see the focus on the flattened yield curve – with "several" indicating that "the past has often been badociated with a deterioration in future macroeconomic performance."The yield on 10-year Treasury bills is only 15 basis points from the slide below the upper range of the Fed's 2.25% to 2.5% target range for the fund rate … would you like he really increase it again and invert the curve? There is no doubt that any increase in the policy rate should be considered if medium- and long-term Treasury yields are higher than those of today and in line with the rising inflation outlook.
9. In fact, this seems to be the only way for Jay Powell to lobby for another hike – "only if the results of inflation were higher" than the basic projection.
10. In fact, a relaxation of the policy is not even perceived as out of the question – "Many participants suggested that it was not yet clear what adjustments to the target range of the federal funds rate might be appropriate later this year." Note the word "a lot" thinking that it is not clear which direction might take the next move. That 's why I looked up to the sky when I read so many evaluations of the minutes that to believe that it was all wrong. a hawkish (or less than dovish) on rates. Only "several other participants" (as in a minority) would be willing to tighten up as long as everything goes well (as in ",if the economy evolved as expected "… now how often does it happen?)
11. There have been several references to financial markets and how policies have become so sensitive to investor behavior. In fact, the Fed has explicitly committed to taking this into account in the future, so that Mr. Market knows that there is indeed a "Powell Put" (as it has already been noted in the first two months of the year).
12. What may have pleased the stock market (while keeping the litany of economic risks down, the price of which would probably have already been taken into account at the end of last year), is the suggestion that the Fed will end its QT policy, not at the end of maybe even earlier. A sin, "Later this year" and make the announcement "before too long"… The stock market, as we've seen, likes most tweets, dinners, photo shoots and announcements.

Read more:Two famous recession signals are descending into the danger zone and some Wall Street strategists are convinced that a collapse is fast approaching.

The most important parts of the minutes

Below are some key snippets. What's really important, in my opinion, is in bold, and the extremely important things are bold and underlined.

Examination of the economic situation by the staff

Information available for the January 29-30 meeting indicated that the labor market situation was continuing to strengthen and that real gross domestic product (GDP) growth was strong in the fourth quarter of last year.

The overall build-up non-financial commercial debt at levels close to historical highs in relation to GDP considered as a factor likely to amplify adverse shocks for the business sector.

Staff Economic Outlook

US economic forecasts prepared by staff for the January FOMC meeting were revised a littleoverall, mainly reflecting lower expected trajectories for domestic equity prices and foreign economic growth. Staff estimated that US real GDP growth was below solid in the fourth quarter of last year, stimulated by consumer spending and business investment, and the effects of the partial closure of the federal government were quite weak during this quarter. Real GDP growth is expected to slow but remains solid in the first half of this year, the effects of the partial shutdown of the federal government moderately limiting GDP growth in the first quarter and these effects being reversed in the second quarter.

Views of participants on current conditions and economic prospects

Participants agreed that during the interim period the labor market continued to strengthen and economic activity was reduced. rising fast.

Several participants commented that they had lowered their prospects for the growth of output since the December meeting, citing a relaxation of consumer or business confidence, a reduction in growth prospects for the foreign economy or the tightening of financial conditions in recent months.

Participants noted that the growth of Fixed investment companies had moderated of his fast pace earlier last year. Some participants pointed out that recent polls on the business climate or contacts in the district had revealed the weakening of optimism or confidence in the economic outlookalthough the available indicators suggest that the business climate has remained high. Concerns about the economic outlook have been attributed to uncertainties or concerns about slowing global economic growth, particularly in Europe and China; Exchange Policy; decrease in fiscal stimulus; and partial government shutdown. Manufacturing contacts in a number of districts indicated that such factors drove them to delay or delay capital expenditure. In addition, some participants noted that recent declines in oil or gas prices have dampened capital spending plans in the energy sector.

In addition, a lot participants commented that upward pressures on inflation seemed to be softened more than they seemed last year, despite tighter labor market conditions and rising input costs for some industries.

In their badysis of inflation expectations indicators, participants noted that market-based inflation-offset measures have declined in recent months.. Participants expressed different views on the interpretation of the decline in inflation compensation. On the one hand, this decline could come from a decrease in expected inflation from market players. In this case, the current low levels of inflation compensation could suggest that inflation expectations are below the 2% target set by the Committee. On the other hand, the decline in inflation compensation could be largely due to lower risk premiums or heightened concerns about the risks of worsening inflation prospects. This interpretation was found to be consistent with the behavior of the most recent measures of expected inflation based on surveys, which have changed little.

Participants commented on a number of risks related to their prospects for economic activity, the labor market and medium-term inflation. Participants noted that some downside risks had increased, including the possibility of a stronger-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid decline in fiscal stimulus, or a increased tightening of financial market conditions. The increase in some uncertainties related to foreign and domestic government policies, including those related to Brexit, escalating tensions on international trade policies and the possibility of further federal closures also occurred. have been cited as downside risks. Some participants expressed concern that long-term inflation expectations may be lower than levels consistent with the 2% target set by the Committee. Several participants felt that the risks that could lead to higher than expected inflation had decreased relative to downside risks. The possibility that various sources of uncertainty are easing faster than expected was mentioned as a potential upside risk. for the economic outlook.

Several participants also noted that the slope of the Treasury yield The curve was unusually flat by historical standards, which in the past had often been badociated with deterioration in future macroeconomic performance.

Participants noted that the prices of financial badets appeared to be sensitive to information on trade policy tensions, national fiscal and monetary policies and prospects for global economic growth … Participants agreed that it was important to continue to follow the evolution of the financial markets and to evaluate their implications for the economic outlook.

Participants highlighted a variety of considerations that supported a patient approach to monetary policy at this stage, as an appropriate step in managing the various risks and uncertainties related to the outlook. With regard to the national economic situation, additional data would help decision-makers badess the trend of the firm and consumers, whether the recent decline in core and total inflation and the compensation for inflation would persist, as well as the effect of tighter financial conditions on global demand. Incoming information In the coming months could also shed light on the effects of the recent partial closure of the federal government on the US economy and on the results of the budget negotiations that took place following the closure, including the possible implications for the policy trajectory budgetary. A patient approach would have the added benefit of giving policymakers the opportunity to judge the reaction of economic activity and inflation to recent steps taken to normalize policy direction. monetary.. In addition, a patient posture would be leave time A clearer picture of the state of international trade policy and the state of the world economy should, among other things, enable policymakers to exercise stronger judgment on the extent and persistence of the economic slowdown in Europe and China.

Participants noted that maintaining the current target range for the federal funds rate for a while presented little risk at this time. The current level of the federal funds rate was at the Lower range of neutral interest rate estimates. In addition, inflationary pressures were eased and badet valuations were less tense than they were a few months ago. Many participants suggested that it was not yet clear what adjustments to the target range of the federal funds rate might be appropriate later this year.; Many of these participants argued that rate hikes may only be necessary if inflation results were higher than in their baseline outlook. Several other participants indicated that if the economy has evolved as they expected it, they would consider it appropriate to raise the target range for the federal funds rate later this year.

Almost all participants felt that it would be desirable to announce too early a plan to end the Federal Reserve's reduction in holdings later this year.. Such an announcement would provide more certainty on the process of standardizing the size of the Federal Reserve's balance sheet. A substantial majority expected that, once the badet purchases were completed, the level of reserves would probably be a little higher than necessary for the efficient and effective implementation of monetary policy; if so, many have suggested that a further gradual decline in the average level of reserves, reflecting the trend growth of other liabilities such as outstanding Federal Reserve banknotes, may be appropriate. According to these participants, this process would allow the Federal Reserve to slowly arrive at an efficient level of reserves while maintaining good control of short-term interest rates without having to engage more freely in the open market..