Another View of the Fed Minutes

A critical acknowledgement in the minutes was that the U.S. economy is improving; however, further improvement is still needed to justify a liftoff. Accordingly, committee members, who object to the notion inflation is reversing, have solidified a “lower for longer” forecast for the fed funds rate.

Ultimately Stifel maintained its 2016 forecast for liftoff that the economy remains substandard and inadequate, unable to justify a near-term rate increase, as it has for the past several years. The firm also believes that no matter how impatient the market or Fed officials are to get “things going,” it is all about the data, and the data says the economy needs more time to improve further.

Stifel’s Lindsey Piegza listed three key takeaways from the Fed’s release:

• The Fed continues to maintain a “moderate” assessment of the economy as business investment and exports “stayed soft.” Most committee members judged conditions “were approaching” but do not yet warrant a rate increase, suggesting the status quo is not sufficient and the Fed will wait on the sideline for “further” improvement.
• Most said they reject the notion that inflation data is “moving towards” the Fed’s longer-term target of 2%. Coupled with declining prices in the commodity market and stagnant wage pressures, committee members suggested “uncertainty” regarding when wage pressures would accelerate and rather, an acknowledgement that prices are likely to continue to run below the committee’s target rate for some time.
• International volatility and contagion concerns remain a hot topic of discussion among committee members. Committee members specifically noted concerns over the rapidly rising dollar and “china raised concerns.”

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