Highlights:

  • Nominal The apparent slowdown in Q1/17 growth was seen as primarily reflecting temporary factors.
  • Several participants now expect meaningful fiscal stimulus won’t begin until 2018; only half of participants incorporated assumptions about fiscal policy in their projections.
  • Participants saw growing anecdotal evidence of tightening labour market conditions and nearly all judged that the US economy is at or close to maximum employment.
  • Some participants see the Committee has having essentially met its inflation objective or expect it to be met this year. Even among those who thought otherwise, several see a gradual pace of tightening as consistent with inflation stabilizing around 2%.
  • Most participants think a change in the Committee’s reinvestment policy will likely be appropriate later this year. Tapering of reinvestment is generally preferred to ending reinvestment all at once.

Our Take:

The Fed raised rates for the second time in just three months in March but nonetheless disappointed those hoping the Committee would double down on the more hawkish rhetoric that boosted rate expectations ahead of the meeting. Today’s minutes seem to indicate the market reaction was a bit unfair – the Committee’s discussion can hardly be characterized as dovish. The economic outlook was broadly positive and participants seem willing to look through a slightly slower start to the year (we are currently monitoring GDP growth close to 1½% in Q1/17). Risks were once again seen as balanced, but if anything, tilted a bit more to the upside than previously. Expansionary fiscal stimulus is still viewed as an upside risk to most participants’ outlooks. As well, a growing number now see the Committee as having met or soon to meet both employment and inflation objectives. There is clearly a consensus that gradual removal of accommodation is needed this year – at least two more hikes in 2017, according to the dot plot, with risk again tilted to the upside. We look for the next move to come in June.

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