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8 Minute Read by Reuters Staff (Reuters) – NEW YORK (Reuters) – According to the minutes of the Federal Reserve’s June policy meeting, officials judged that substantial further progress on the economic recovery “was generally assessed as not having yet been met,” though participants expected improvement to continue. The Federal Reserve building in Washington, DC, United States, on August 22, 2018. FILE PHOTO: The Federal Reserve building in Washington, DC, United States, on August 22, 2018. Chris Wattie/Reuters/File Photo According to the minutes, “a number of participants” at the meeting still believed that conditions for tapering asset purchases would be “satisfied rather earlier than they had anticipated,” while others saw a less clear signal from incoming data. STORY: TEXT:MARKET REACTION** The S&P 500 gained 0.33 percent in the most recent session. After touching a four-and-a-half-month low below 1.30 percent earlier, the 10-year Treasury note yield remained constant at 1.3196 percent. The 2-year note’s yield fell to 0.2161 percent. ** The increase in the US dollar index was reduced to 0.079 percent. ANDREW RICHMAN, SENIOR FIXED INCOME STRATEGIST, STERLING CAPITAL MANAGEMENT, JUPITER, FLORIDA, COMMENTS: “It wasn’t a significant change.” I don’t think there are any major takeaways from this, other than the fact that they’ll start talking about tapering at the next meeting, which isn’t surprising. And whether they acquire mortgage-backed securities and treasuries in lockstep or slow down their mortgage-backed securities purchases is still to be established.” “It appears like they’re preparing the market for a cutback in bond buying around the end of the third quarter or the beginning of the fourth quarter.” CHIEF UNITED STATES FINANCIAL ECONOMIST, OXFORD ECONOMICS, NEW YORK KATHY BOSTJANCIC “We’re aware that a schism is forming within the FOMC. We know that the majority of them have increased their growth forecasts. We understand where the differences in view on inflation are, as well as how comfortable people are with inflation rising at its current rate and what to expect in the future. It also reveals a somewhat different perspective on the inflation look-back period, such as “over what time do we average inflation.” “The divergence, in my judgment, is not on the growth front, but rather on the inflation front.” To some extent, we were aware of this. It only served to emphasize it.” BK ASSET MANAGEMENT, NEW YORK, MANAGING DIRECTOR KAHTY LIEN “Today’s minutes were probably less dovish than markets had expected, since some had expected them to minimize the good outlook from the FOMC meeting itself.” But today’s minutes simply serve to reinforce that the Fed will most likely reduce asset purchases this year, and I believe the dollar’s reaction will be restrained because we are coming off some softer economic indicators, such as the ISM number, and 10-year rates are down 2% today. Overall, I don’t believe today’s number prevents the dollar from resuming its rally against the Japanese yen, or even against the euro, because we’ve seen more data disappointments in the eurozone; in other words, there wasn’t a big reaction, but I don’t believe it prevents the dollar from extending its gains.” WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON DC, SENIOR MARKET ANALYST JOE MANIMBO “In the aftermath of the Fed minutes, the dollar has given back some of its gains. When it comes to tapering, it appears that the exact date when officials will begin the policy is still unknown. The Fed’s acknowledgement that the economy hasn’t made much more progress, I believe, was the single factor that caused the dollar to lose some momentum… The Jackson Hole venue, in my opinion, is still alive and well; it’s only that the June Fed minutes were equivocal on when tapering would begin.” “If you break down what’s happened in the economy since the last Fed meeting, one is that inflation fears have subsided, despite the fact that at the Fed policy meeting, a solid majority of Fed officials reportedly identified upside risks to the inflation outlook.” As a result, I believe it has softened their bullish view on inflation.” MIZUHO SECURITIES USA LLC, NEW YORK, STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST “I don’t think they’ve figured out what they want to do yet.” And people’s assumptions – that it will be MBS first – obviously show that some people don’t believe that.” As the committee’s post-meeting policy statement made clear, the taper debate was essentially non-committal. “The tone and substance of the FOMC’s meeting did not provide support for the street’s hawkish takes on the dots or the SEP at some point in the near future.” CHIEF INVESTMENT OFFICER, COMMONWEALTH FINANCIAL NETWORK, WALTHAM, MASSACHUSETTS BRAD MCMILLAN, CHIEF INVESTMENT OFFICER, COMMONWEALTH FINANCIAL NETWORK, WALTHAM, MASSACHUSETTS “The actual message I got here was that most of the attendees were talking about uncertainty more than anything else.” Some people are feeling better, while others are experiencing negative effects. But the general agreement appears to be that there is simply too much uncertainty to make a decision, which to me means they will continue to be cautious and maintain current policy.” “I take this as a dovish collection of notes simply because they don’t believe they have enough certainty about the issue as a group to make any adjustments at all,” says the author. “Markets responded a few weeks ago by saying, ‘Oh my gosh, they’re going to taper,’ but what you’re seeing now is that they have no plans to taper.” They’re exactly where they were before: we don’t know what’s going on, there’s a lot of ambiguity, and we’ll keep doing what we’re doing until we see evidence-based results, which they haven’t seen yet.” LPL FINANCIAL SENIOR MARKET STRATEGIST RYAN DETRICK IN CHARLOTTE, NORTH CAROLINA “It doesn’t appear that (the Fed) has rocked the boat too much; there’s talk of easing off on asset purchases, which isn’t surprising.” There isn’t much of a response here. “‘Transitory’ is a word we’ve heard a lot, and they’re easing away from it, leaving the door to the possibility that inflation will last a bit longer.” The Fed is like a family, and clearly they don’t all agree, but it’s Chairman Powell’s word, and there are no substantial changes in the works to take that away.” BOB MILLER, BLACKROCK, NEW YORK, HEAD OF AMERICAS FUNDAMENTAL FIXED INCOME (email) “As it has become increasingly difficult to overlook the tremendous improvement in the domestic economic environment, as well as the better virus/vaccine-related situations, today’s FOMC minutes indicated a large dispersion of perspectives among Committee members.” “As the FOMC becomes genuinely more data dependent and less calendar based, monetary policy recalibration is now on the table.” Today’s minutes indicated a Committee that has begun to shift its focus away from actual economic outcomes and toward a more outlook-dependent reaction function. Financial markets should now modify the distribution of outcomes with respect to slowing asset purchases and ultimate lift-off from zero interest rates as a result of the upside/downside surprises for pertinent economic indicators.” The U.S. Finance & Markets Breaking News team compiled this list./nRead More

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