FOMC minutes reviewed

Analysts at Nomura offered the FOMC minutes.

Key Quotes:

"The FOMC minutes from the 30-31 January meeting were in line with our current expectations for four hikes in 2018, with the next hike at the upcoming March FOMC meeting. However, the minutes as well as developments since the January FOMC meeting point to an increased likelihood of a more hawkish tone in the March meeting. The minutes indicated that relative to forecasts submitted in December meeting, “a number of participants” revised up their near-term growth forecasts.

The reasons for the upward revisions included good data and positive revisions to the estimated effects of the tax plan. The minutes indicated that participants expect increased likelihood that further gradual policy firming would be appropriate.

Moreover, the January minutes showed that the FOMC had an intensive discussion on inflation, described in a new section called “Inflation Analysis and Forecasting.” In light of the unexpected underperformance of inflation in 2017, the FOMC staff presented the results from a range of models and noted factors “beyond those captured … that appeared to have put downward pressure on prices in recent years.”

Those factors consist of structural changes as well as temporary (“idiosyncratic”) price shocks. Although the FOMC participants maintained the traditional view that changes in slack in the system and the long-run inflation trend are both important forces in forecasting inflation, the discussion did not reach any tangible conclusions that would have significant monetary policy implications.

We expect that the Monetary Policy Report that will be released on Friday will provide a more detailed discussion of the inflation forecasting analysis."

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