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Having continued to taper, expressed no fear of inflation, and been nothing but confident that Q1 was nothing-but-weather at the press conference, the FOMC Minutes:


Strange not a mention of the surge in Treasury fails but this appears as close to a “sell” as the Fed will give…

Pre-FOMC Minutes: S&P Futs 1964, Gold $1323.50, 10Y 2.59%, Oil $102.22, JPY 101.75

Some of the key excerpts:

On complacency:

The VIX, an index of option-implied volatility for one-month returns on the S&P 500 index, continued to decline and ended the period near its historical lows. Measures of uncertainty in other financial markets also declined; results from the Desk’s primary dealer survey suggested this development might have reflected low realized volatilities, generally favorable economic news, less uncertainty for the path of monetary policy, and complacency on the part of market participants about potential risks.

On the October end to QE:

While the current asset purchase program is not on a preset course, participants generally agreed that if the economy evolved as they anticipated, the program would likely be completed later this year. Some committee members had been asked by members of the public whether, if tapering in the pace of purchases continues as expected, the final reduction would come in a single $15 billion per month reduction or in a $10 billion reduction followed by a $5 billion reduction. Most participants viewed this as a technical issue with no substantive macroeconomic consequences and no consequences for the eventual decision about the timing of the first increase in the federal funds rate—a decision that will depend on the Committee’s evolving assessments of actual and expected progress toward its objectives.

On lack of investor certainty:

A few participants thought that, given the degree of uncertainty about the effects of the Committee’s tools on market rates, it might be preferable to focus on an administered rate in communicating the stance of policy during the normalization period

On lack of wage frowth:

A couple of participants noted that, to date, consumer spending had been supported importantly by gains in household net worth while income gains had been held back by only modest increases in wages. In their view, an important element in the economic outlook was a pickup in income, from higher wages as well as ongoing employment gains, that would be expected to support a sustained rise in consumer spending.

Odd how said pickup never happens then?

Then there was the absolutely laughable normalization, which may be coming sooner than people think, although probably not as nobody has any idea what it means.

Overall, participants generally expressed a pr eference for a simple and clear approach to normalization that would facilitate communication to the public and enhance the credibility of monetary policy. It was observed that it would be useful for the Committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate. Most participants indicated that they expected to learn more about the effects of the Committee’s various policy tools as normalization proceeds, and many favored maintaining flexibility about the evolution of the normalization process as well as the Committee’s longer-run operating framework. Participants requested additional analysis from the staff on issues related to normalization and agreed that it would be helpful to continue to review these issues at upcoming meetings. The Board meeting concluded at the end of the discussion.

More on the total confusion within the FOMC:

The dispersion of projections for the value of the federal funds rate was little changed in 2015 but widened slightly in 2016. Most participants expected that the federal funds rate at the end of 2016 would still be significantly below their individual assessments of its longer-run level. For about half of these participants, the low level of the federal funds rate at that time was associated with inflation well below the Committee’s 2 percent objective. In contrast, the rest of these participants saw the federal funds rate at the end of 2016 as still significantly low despite their projections that the unemployment rate would be close to or below their individual longer-run projections and inflation would be at or close to 2 percent at that time. These participants cited some combination of a lower equilibrium real interest rate, continuing headwinds from the financial crisis and subsequent recession, and a desire to raise the federal funds rate at a gradual pace after liftoff as explanations for the still-low level of the projected federal funds rate at the end of 2016. A couple of participants also mentioned broader measures of labor market slack that may take longer to return to their normal levels than the unemployment rate.


Estimates of the longer-run level of the federal funds rate ranged from 3¼ to about 4¼ percent, reflecting the Committee’s inflation objective of 2 percent and participants’ individual judgments regarding the appropriate longer-run level of the real federal funds rate in the absence of further shocks  to the economy. Compared with March, some participants revised down their estimates of the longer-run federal funds rate, with a lower assessment of the longer- run level of potential output growth cited as a contributing factor for the majority of those revisions. As a result, the median estimate of the longer-run federal funds rate shifted down to 3.75 percent from 4 percent in March, while its mean value declined 11 basis points to 3.78 percent.

Finally, use of “liftoff“:

It was noted that, in the staff’s models, making a change to the Committee’s reinvestment policy prior to the liftoff of the federal funds rate, at the time of liftoff, or sometime thereafter would be expected to have only limited implications for macroeconomic outcomes, the Committee’s statutory objectives, or remittances to the Treasury.



Many participants agreed that ending reinvestments at or after the time of liftoff would be best, with most of these participants preferring to end them after liftoff.



the median dealer had expected reinvestments to end before liftoff.



participants cited some combination of a lower equilibrium real interest rate, continuing headwinds from the financial crisis and subsequent recession, and a desire to raise the federal funds rate at a gradual pace after liftoff as explanations for the still-low level of the projected federal funds rate at the end of 2016.

Full hawkish minutes:

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