Mixed Minutes Show Divided FOMC
Alvexo | Feb 18, 2016 10:44AM ET
Confusion and mixed remarks from policymakers in the United States Federal Open Market Committee have market participants unable to glean any indications on forward policy momentum in 2016, as contradiction between individual members clouds the outlook. The sticky situation for fundamental growth in the United States has opinions between FOMC members divided on the correct course of action for the country, with some opining that more hawkish action should be taken regardless of the difficulty with which inflation and other metrics have to reach their goals. Through the comments in the meeting minutes, others were observed to believe that dovish policy is the way to go, with peer countries like Japan instituting negative rates and these officials willing to follow suit with similar accommodative measures. Interest rates are the instrument of choice in this battle, with each party to raise or lower depending on perspective. The doves would see another round of rate cuts while the hawks cite improving fundamentals as a reason to avoid the dangers of keeping rates low.
Citing of data in reports and general data dependency is one of the potential problems inherent in trying to solve economic problems with old methods, when the economy domestically and internationally is in a situation too historically unique. The lack of expectations for further policy tightening during March’s meeting amidst dovish statements has investors returning to risk assets, but this simply highlights the transiency in today’s market. Those paying close attention to developments across the globe that do not require data know that underlying problems in the way that global financials were handled after the 2008 correction mean that downward pressures are extremely strong. Disinflation, energy prices, China, and a strong US dollar continue to weigh on the outlook and render traditional methods of stimuli ineffective. In the US at least, exemplary labour trends may be the impetus necessary to provide a boost to growth even if policy is tightened, with the Atlanta Federal Reserve GDP model predicting 2.60% growth in the first quarter. This could put wind in the US dollar’s sails, stealing the breath from the lungs of equities and other risk assets later into the year.
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