FOMC Minutes Show Fed Continues To Discuss Policy Review As "Fate Of Economy Tied To Virus Path"

Since the July 29th Fed Statement, gold is unchanged, stocks are up significantly and bonds and the dollar lower...

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Source: Bloomberg

Interestingly, the market's Fed rate trajectory expectations tightened quite significantly with negative rates now off the table for Dec 2021...

(Click on image to enlarge)

Source: Bloomberg

Although we do note that there is no full hike priced in until 2025!

As we detailed earlier, the July FOMC did not "set the foundation" for future policy tweaks, like enhanced forward guidance or yield curve targeting. Analysts believe this sort of policy detail may only follow the Fed's strategy review, likely due in September. Accordingly, the minutes will be parsed to see if there is any emerging consensus on a number of themes, like enhanced forward guidance, inflation targeting, the Fed's mandate, etc.

If it appears as though there is an emerging consensus, it will likely trigger the Fed into shaping its communications accordingly ahead of the Jackson Hole economic symposium, August 27-28, which comes ahead of mid-September FOMC, the last before the November elections.

So, what was the message from today's narrative-shaping Minutes?

The Minutes confirmed that discussions continue on how the central bank designs additional support this year after cutting interest rates to near zero and expanding sharply its $7 trillion asset portfolio to support an economy reeling from the coronavirus pandemic; and how refining that policy statement could help improve transparency.

At this meeting, they discussed potential changes to the Committee’s Statement on Longer-Run Goals and Monetary Policy Strategy. Participants agreed that, in light of fun-damental changes in the economy over the past dec-ade—including generally lower levels of interest rates and persistent disinflationary pressures in the United States and abroad—and given what has been learned during the monetary policy framework review, refining the statement could be helpful in increasing the trans-parency and accountability of monetary policy. Such re-finements could also facilitate well-informed deci-sionmaking by households and businesses, and, as a re-sult, better position the Committee to meet its maxi-mum-employment and price-stability objectives. Partic-ipants noted that the Statement on Longer-Run Goals and Monetary Policy Strategy serves as the foundation for the Committee’s policy actions and that it would be important to finalize all changes to the statement in the near future

Additionally, Fed officials confirmed that the fate of the economy was linked with the uncertain path of the virus.

"In light of the significant uncertainty and downside risks associated with the course of the pandemic and how long it would take the economy to recover, the staff still judged that a more pessimistic projection was no less plausible than the baseline forecast."

Some officials worried about financial stability risks if the pandemic persisted.

On Inflation-Targeting:

"A few participants noted a risk that longer-term inflation expectations might move below levels consistent with the Committee’s symmetric 2 percent objective. Participants also noted that a highly accommodative stance of monetary policy would likely be needed for some time to support aggregate demand and achieve 2 percent inflation over the longer run."

Developing...

Full Minutes below: