Fed Minutes Signal Desire to Begin Balance Sheet Unwind in 2017
The minutes from the Federal Reserve’s May 3rd FOMC monetary policy meeting noted that the recent weakness in the economy was likely to be transitory and that it would likely “soon be appropriate” to raise rates again. Officials noted that it was prudent to wait for further evidence that recent economic weakness would pass, but that their assessment of the U.S. economy was largely unchanged from March’s meeting with labor markets improving and receding risks from the global economy.
Much of the discussion at the early May meeting centered around unwinding the Fed’s massive balance sheet, with officials favoring beginning that process this year. Beginning to wind down the Fed’s balance sheet is widely seen as a tightening of financial conditions and could mitigate the need for increases in lending rates.
The dollar and bond yields initially inched lower following today’s Fed minutes. On one hand, there was less of a direct reference to a June lending rate hike than some may have expected and the potential for starting to unwind the Fed’s balance sheet this year could dampen expectations for a rate hike in the second half of 2017. On the other hand, the Fed sounded upbeat on the overall health of the economy and saw much of the recent economic softness as transitory.
While the minutes may be reassuring to investors worried about recent signs of a slowing U.S. economy, they are not likely hawkish enough to offset some of the political headwinds currently weighing on the dollar.
https://www.commonwealthfx.com/fomc-meeting-minutes/
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7 年Reasonable insights here assuming we're dealing with responsible bankers, but ultimately a broken record from the Fed, an organization some might argue is largely responsible for the gross distortion of capital markets and global asset values. Contrast the rosy outlook from the Fed, Goldman and others to the facts on the ground on wage growth, home ownership, consumer debt and we witness starkly different realities. Life is very good for a few at the top, but the middle class is largely disappearing and with it the fundamental drivers of our economy, those hungry young men and women who want to make a better life for their families but have been priced out of a decent future. Perhaps we should stop pretending socialist stop-gaps like bailouts, entitlements and QE are reasonable solutions and start facing these problems like adults. At the Fed, instead of standing up a defender of our deposits, we seem to have created a parental enabler of fiscal irresponsibility. Sure, in the game of life there will always be winners and losers but only true capitalism can give us the level playing field and financial security that all Americans deserve.