FOMC Minutes Signal Optimism On Fiscal Plans, Some Officials Fear "Stability Risks"

Since The Fed's last statement and press conference (on March 17th), stocks and bonds are up marginally, gold has roundtripped back to unchanged (from a sizable loss) and the dollar is holding on to modest gains...

Source: Bloomberg

Interestingly, on the equity front, growth has dominated value as reflation themes fade...

Source: Bloomberg

And Big-Tech has dominated Small Caps, back near 7-week highs relatively-speaking...

Source: Bloomberg

On the rates front, the market tightened significantly after the FOMC statement but has recently eased back as hopes for Biden's stimulus malarkey faded a bit...

Source: Bloomberg

With all eyes on the latest FOMC Minutes for any signs of The Fed walking back any of its unprecedentedly easy policies, we note that Federal Reserve Bank of Dallas President Robert Kaplan warned today that "I do worry about excesses and imbalances," adding that "failing to communicate Fed exit could stoke risk-taking," adding that The Fed "should withdraw some accommodation once the pandemic is over."

Additionally, San Francisco Fed's Daly said today that The Fed "can ultimately return its balance sheet to more normal levels." We doubt it. Daly also shares some optimism - in opposition to Powell's more downbeat view that the situation is still dark- saying that "though we are not through the pandemic yet, there is light at the end of the tunnel."

The Fed has said it will start to slow asset purchases when there’s “substantial further progress” toward its employment and inflation goals.

Bloomberg Chief U.S. Economist Carl Riccadonna note that with the Fed firmly on hold, the utility of the minutes will be concentrated toward gleaning clues on policy makers’ preconditions to commence tapering asset purchases. We expect the Fed to develop a clearer framework for dialing back purchases around midyear, but actual tapering will not commence until 2022.”

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