What To Expect From FOMC Minutes? Market predictions and reactions - page 14
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Bullard thinks the Fed has the right amount of stimulus Q&A from Bullard
FOMC members don't get appointed for their sense of humour
2010 Fed transcripts have some lighter moments
The WSJ details the lighter side of the Fed discussions.
These are the best two exchanges in a year of meetings. Needless to say, a two-day Fed meeting falls distinctly on the 'dry' side.
The Fed's top international economist, Nathan Sheets, summed up the state of Greece by noting its "apparent slide from advanced economy to emerging market status" during its crisis:
CHAIRMAN BERNANKE. If a country goes from advanced status to emerging market, is that a submerging market? [Laughter]
The economic overview brings us back to Fed Funnyman David Stockton:
CHAIRMAN BERNANKE. Terrific. Anything else? [No response.] All right, we can now turn to the second agenda item, the economic situation, and turn to Dave Stockton and Nathan Sheets to give us the overview.
MR. STOCKTON. Those of you who monitor postings on SDS probably noticed that soon after we published the Greenbook last week, I was forced to issue a corrected version. Inadvertently, some of the dates in the headers had not been changed from the March publication date. Normally, I wouldn't submit myself to that ritual humiliation for something as seemingly trivial as header dates. But I was concerned that some of you may have thought we were simply resubmitting the March Greenbook [laughter] so that we could do nothing this round. Given how little our forecast has changed since last summer, I'll admit that this has become an increasing temptation. But being good government bureaucrats, I can assure you that we spent considerable time, energy, and resources to do nothing [laughter].
Should The Fed Be Hiking Rates In This Environment? - Goldman Sachs If that decision had to be made now, our answer would be a clear no. Although our baseline view has not changed, the risks to it have become even more asymmetric and the risk management case for waiting has become even more compelling.
The FOMC will likely recognize these increased downside risks in the statement following the January 26-27 meeting. But the next real decision whether to tighten further does not need to be made until March 16-17. And at that point, the picture could look quite different if our economic forecast is correct.
If the growth and employment data remain solid, core PCE inflation moves higher, and financial conditions stabilize, our expectation is that the FOMC would hike rates again, although the risks to this view have clearly grown in recent weeks.
USD Into FOMC: 'Waiting Is The Hardest Part' - BofA Merrill After the Fed hiked rates in December, markets and analysts widely expected no further action at the January FOMC meeting. However, with sharp risk-off moves in global markets since the start of the year, sentiment has turned to looking for a more dovish Fed. Specifically, some market participants anticipate the Fed will signal far fewer rate hikes this year than the four implied by the December dot plot. We think that is unlikely, despite the market now barely pricing one rate hike for all of 2016 (Chart of the day). The Fed can afford to remain patient this week and watch to see how the macroeconomic data and markets evolve heading into the March meeting. The Fed may sound somewhat more cautious in the January statement, but will not give updated guidance on the pace of hikes, in our view.
After a number of central banks gave dovish messages in recent weeks, including Draghi suggesting additional ECB easing could come in March and Kuroda stating the BoJ will do whatever it takes to get inflation back to target, attention has shifted to the Fed. We have been struck by the number of clients—particularly those focused on equities or oil—asking what the Fed might do at this meeting to lend additional support to their markets. EM investors have also grown anxious about the pace of Fed tightening. A Fed that is seen as insufficiently dovish could disappoint risk markets and spill over into fixed income assets through sentiment and safe haven flows.
With no press conference or updated forecasts (no new dots) in January, markets may need to wait for subsequent speeches, particularly Chair Yellen’s Semi-annual Monetary Policy (Humphrey-Hawkins) testimony on 10-11 February, to get a better sense the Fed’s current views on the likely pace of hiking and risks.
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FOMC will NOT be a dove-fest – SEB, BNP Paribas After the Carney Carnage, the BOJ’s beating of the yen and Draghi’s dovishness, many expect the Fed to send a dovish message and to weaken the dollar.
This may not be the case. Here are two opinions:
SEB:
After the fireworks in December, we expect only small changes to the January FOMC statement. With no formal forward guiding with respect to the plans for the next rate hike, the March FOMC meeting is expected to remain a “live” meeting. Back in December, when the Fed hiked rates for the first time since 2006, the Fed was looking for the next hike at the March meeting and for a total of four hikes in 2016. With respect to 2017, another four 25 basis point hikes was the baseline. Amid the plunge in oil prices and other risk assets since the turn of the year, the future market is now pricing in less than one hike for 2016 as a whole. Back in December, the market was looking for 2 additional hikes both in 2016 and 2017.
With respect to the March meeting, according to market pricing the probability of a hike is around 20% now compared to 45% a month ago. Tighter financial conditions mean less need for actual rate hikes and we are looking for the Fed to take it easy and assess the situation for a while. As such, our forecast is for the next 25 basis point hike in June, followed by hikes in September and December.Higher wage growth will ultimately force the Fed to resume the tightening cycle.
While the factory sector is weak, the domestic economy is doing well and there is a potential for consumer spending to surprise to the upside in 2016. The labor market is getting drum tight so this year higher wage growth will finally materialize according to our forecasts. While less inventory buildup and weak exports have depressed Q4 real GDP growth the weakness is likely temporary and those looking for the Fed to signal that a March hike is off will likely be disappointed.
That said, it will be interesting to see how the Fed describes the recent financial market volatility without voicing too much concern. In the December FOMC statement the “monitoring global economic and financial developments” was taken out but given the circumstances it is prudent to incorporate such wording again. The “balanced” risks to the outlook in December may be replaced with “nearly balanced” without ruling out a March hike.
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FOMC Preview: Use The Force, Janet I thought “Star Wars: The Force Awakens” was an incredible movie. That may seem like a weird way to start a report about the Federal Reserve’s January policy meeting, which it is, but bear with me.
The movie had a massive scale, constant action, interesting characters, and most importantly for me, a plot that even an extremely casual Star Wars fan could follow (as in, I last watched Episode 4-6 a decade ago and have seen bits and pieces of Episodes 1-3). While I loved it, the much bigger Star Wars fans with whom I saw the movie (namely my wife and Father-in-Law), gave it mixed reviews, not because they thought it was a bad movie, but because it didn’t live up to their expectations from the first six movies, not to mention the countless trailers they had seen and spoiler articles they had read.
Wednesday at 2:00pm ET (19:00 GMT), the Federal Reserve’s Open Market Committee will announce the results of its first monetary policy meeting of 2016. The central bank will almost certainly leave interest rates unchanged in the 0.25-0.50% range and there will be no press conference or updated economic forecasts, so traders will key in on the central bank’s monetary policy statement. In other words, get your reading-between-the-lines glasses ready because there’s going to be a lot of speculation about what the central bank will be doing moving forward.
Since the Fed’s hiked interest rates at its last meeting in December, the US economy has evolved roughly as anticipated. On the positive side, the December Nonfarm Payroll report was solid at +257k jobs, consumer confidence has improved and the trade deficit has narrowed. That said, we’ve also seen deterioration in price pressures, retail sales and activity in both the Manufacturing and Services sectors. In isolation, US economic developments would argue for leaving the statement essentially unchanged and sticking to the plan for a likely rate hike (or at least a hotly debated decision) in March.
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A more dovish FOMC expected say Credit Agricole
Expectations leading into the FOMC and RBNZ later today
Say CA:
When it comes to the Fed a more dovish assessment seems to be expected when considering increased global growth uncertainty to the detriment of investors' central bank rate expectations.Even if inflation expectations close to multiyear lows suggest that a more cautious stance may be on the cards, we believe that the main focus will remain on still constructive growth prospects. As such the Fed may reiterate that weak inflation is regarded to be transitory. If anything it may prove difficult to exceed already dovish expectations as only one 25bp hike is priced in for the reminder of the year.
Accordingly we do not anticipate further falling Fed rate expectations to the detriment of the USD.Elsewhere, we believe that such an outcome does not dependently need to weigh on investors' appetite for risk assets, especially if the Fed manages to keep confidence in the economy intact. It must be noted too that investors' focus may swiftly shift to Friday's BoJ announcement, which may keep liquidity expectations supported.
In New Zealand, we expect the RBNZ to remain on hold even if weaker price developments and more muted external demand expectations have increased the risk of the central bank easing monetary policy further. Nevertheless, we believe that the central bank will maintain its easing bias. In the December MPR, the RBNZ indicated risks of a further rate cut in the second half of this year, this has been somewhat reflected in current market pricing. The next MPR is not due until the March meeting.
Strongly capped central bank rate expectations should keep any NZD upside limited from the current levels.
USD Into FOMC - Credit Suisse This week's highlights are today's FOMC and Friday's BOJ decisions. Figure 4 shows that going into these meetings, one-week implied volatility has been falling for EURUSD but spiking higher for USDJPY.
Our interpretation of this is that the market expects very little in terms of new developments from the FOMC. Policy is expected to be unchanged and at most the Fed is expected to acknowledge the weak global environment, without suggesting at this stage that spillover risk for the US economy is a material concern. With the market now fully pricing in just one Fed rate hike in 2016, it is hard in any case for the Fed to out-dove current expectations.
Meanwhile, Credit Suisse US economists still expect the Fed to hike three times in 2016 after pausing in March.
In this context, it is difficult to see what the Fed can say this week that materially moves the dial on either USD valuation or asset prices on the dovish side. If anything, there is probably a more material risk that if the Fed does not wring its hands about global events enough, US rates re-price higher somewhat closer to a more optimistic view of the US economics community. This suggests the balance of risk is USD positive in terms of immediate price action.
Key Issues To Watch In Today's FOMC - Nomura
The key issue for this week is the degree to which the FOMC acknowledges, in its statement, that circumstances have changed and consequently its expectations for policy have changed (after raising rates for the first time in December, we did not expect the FOMC to raise or lower rates at the very next meeting).
We believe the shortfall in economic data and the tightening of financial conditions are too significant for the FOMC to ignore.We think these unexpected circumstances will be reflected in the FOMC statement in a number of ways.
First,we expect the FOMC to note that incoming data suggest economic growth has slowed.
Second,we expect the FOMC to suggest that recent declines in oil prices are likely to delay the recovery of inflation back to the FOMC’s 2% target.
Third, we expect the FOMC to state that it is monitoring foreign and financial developments, in addition to inflation, as it considers future policy changes.
Finally, we expect the FOMC’s forward-looking assessment to acknowledge that the balance of risks has become more adverse. However, we do not think the FOMC will change key policy language or send an explicit signal about the likelihood and/or probable timing of future policy changes. In effect, we think the FOMC will use its assessment of recent developments and the balance of risks to signal how its expectations for policy are evolving, rather than addressing the outlook for policy directly
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Post-Fed Stalemate The Federal Reserve delivered the perfect “no new news” statement. It defied my expectation for delivering something substantial relative to the current context of market volatility. Media outlets of course tried to make headlines out of the Fed’s latest pronouncements on monetary policy, but fundamentally, nothing changed. The Fed reiterated its data-dependent approach to normalizing rates at a snail’s pace. It was a stalemate kind of day as a result. Notably, the trend pushing out the date of the next rate hike continued: September is now the first month where the odds go above 50%. Media outlets that claim the Fed’s statement keeps a March rate hike in play are off-base.
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