FOMC Minutes: Empire Striking Back; Not So Confident Anymore; Next Move a Negative Funds Rate?
ByIt took a while for this contingent of FOMC members to reach the conclusion that in this economy the dollar matters. With housing on the upswing but not swinging up enough to pull overall growth sufficiently higher, there seems little reason for the Fed to passively accept “potential downside risks resulting from foreign economic and financial developments” by, in effect, allowing the dollar to continue to rise – “the value of the dollar had increased significantly since the middle of last year, and it was seen as likely to continue to be a factor restraining U.S. net exports and economic growth for a time”. By pushing out the timing of the first tightening to September (maybe), the Fed has essentially given the dollar’s depreciation a little more reason. Indeed, in their belief that Q2 would see an expansion in GDP (we do as well), among the reasons why they felt the need to add “if . . . the rise in the foreign exchange value of the dollar did not continue . . . the change in net exports would likely recede”
The long-winded arguments about whether the economy is approaching full employment and what constitutes full employment, arguments akin to wondering how many angels can dance on the head of a pin, are thankfully gone. There are still a lot of words to describe communication with the bond market so that first move doesn’t turn into first panic, especially among participants trading the longer end of the yield curve. From our perspective, these words seem to have lost their immediacy and appear more like boiler plate, paragraphs required in legal documents that no one really reads…
FOMC Minutes: Empire Striking Back; Not So Confident Anymore; Next Move a Negative Funds Rate?
