March on? Economic analysts react to latest Fed minutes

Minutes from the latest Federal Reserve meeting show that many policymakers stand ready to raise interest rates “fairly soon“. But how soon is fairly soon? March? June? The Fed’s vague phrasing has left economic analysts with little more clarity than they had going in.

FastFT has rounded up the following reactions to the Fed minutes released on Wednesday:

Bob Miller, head of BlackRock’s US multi-sector fixed-income team:

“In response to today’s Fed minutes and recent communications, it is clear that another rate hike is a legitimate possibility at the March meeting….So what is the Fed waiting for? When considering why the Fed is waiting to raise rates, it’s important to understand the uncertainty that potential fiscal policy, which is still largely unknown, introduces to the Committee members’ thought processes. After all, while it may not be explicitly stated, politics matter.”

Mark Hamrick, senior economic analyst at Bankrate.com:

“While the minutes don’t mention specific policies (or even the president and Congress) by name, the reference to ‘more expansionary fiscal policy’ is a nod to President Trump’s hopes to give economic growth a substantial lift. If successful, that could translate to a steeper trajectory of rate hikes down the road, probably not before 2018. That’s a big if. At the same time, several members noted concern about downside risks if the dollar were to further strengthen or if foreign economies falter.

“The FOMC’s focus on so-called ‘considerable uncertainty’ associated with yet-to-be implemented policies of the Trump administration and Congress remind us that officials want to see the specifics as well as their eventual impacts on the economy. Unlike investors, they don’t want to bet just yet one way or the other for fear of a serious monetary policy misstep that itself could make their jobs more difficult.”

Ian Sheperdson, chief economist, Pantheon Macroeconomics:

“The mainstream view, though – held by “many” participants, is that the Fed will need to hike again “fairly soon”. We still think May is more likely than March, but a blockbuster payroll report for February could easily change that. Elsewhere, note that a “few” members raised concerns over the elevated level of stock prices and the low level of implied volatility; suggesting, in other words, that stocks are pricing in a great deal of potential good news – tax cuts, deregulation, increased public spending – while ignoring the risk that substantial fiscal easing could trigger a big increase in inflation and much faster rate hikes.”

Paul Ashworth, chief US economist at Capital Economics:

“The key passage in the minutes of the Fed’s policy meeting at the start of this month is that ‘many participants expressed the view that it might be appropriate to raise the federal funds rate fairly soon’. That language clearly leaves the door open to a March rate hike although, on balance, given chair Janet Yellen didn’t appear to be overly enthusiastic on a near-term hike in her more recent Congressional testimony, we still think the Fed will delay until June. Furthermore, while many “participants”, which is Fed code for all officials, might be leaning toward an earlier rate hike, the actual voting members of the FOMC come across as slightly more circumspect.

“The minutes once again illustrated that the uncertainty over fiscal policy is clouding the outlook for monetary policy. The Trump administration will probably have released a 2018 budget proposal by the time of the March FOMC meeting, but it will still take some time before it becomes clear whether those proposals have the support of Congress.”