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FOMC Minutes Preview.

BofAML: The dichotomy between dovish remarks from Fed Chair Janet Yellen and more hawkish comments by several of her colleagues on the Federal Open Market Committee (FOMC) sets the stage for the March minutes. The shift lower in the dot plot was accompanied by modest downward revisions to the outlook, with an outright majority of FOMC participants expecting just two hikes this year. At the same time the Committee was unable to agree on a balance of risks, and the mixed messages of post-meeting speeches suggests underlying disagreement. Thus the minutes may give important insight into the nature and degree of discord, particularly among the voting members. We expect the minutes to sound somewhat more hawkish than Yellen’s recent remarks, if for no other reason than more hawkish views will be represented.

The market’s primary focus will be on the likely timing of the next rate hike. We expect most Fed officials to support keeping every meeting “live,” as well as for several to suggest that hiking at one of the next few meetings could be likely under their forecasts. The main division among the participants should be the assessment of risks, particularly around global economic and financial developments. Details about those concerns would be noteworthy. So too would be any indication of whether a majority saw on net balanced or downside risks. If the main concern was that the outlook had recently become more uncertain, that could fade in plenty of time for a June hike. The other big issue will the inflation outlook. Despite the recent rise in core inflation rates — which would seem to exonerate the FOMC’s long-held view that low inflation was “transitory” — Yellen has noted the slippage in inflation expectations and residual slack in the labor market. These factors likely contributed to her lack of conviction. How widely shared her skepticism on an inflation pickup are will be notable as well, as that should strongly influence the pace of rate hikes.

Finally, discussion of a slower trend rate of productivity growth would be noteworthy. With slower productivity growth, the terminal funds rate may be lower while inflationary pressures and thus the speed of normalization would be faster. Yellen alluded to some debate on the FOMC regarding this issue, but so far Fed officials do not appear to have embraced this possibility. We think that could happen over time, which could materially change market expectations for the tightening cycle. 

Barclays: We look to the minutes of the March FOMC meeting to provide context for the surprisingly dovish policy statement and downward revision to the median path of the dots. Several regional Federal Reserve Bank presidents have noted that the April meeting remains “live” for rate hikes if the data hold up. Since then, however, Chair Yellen indicated that she sees downside risks to the outlook stemming from abroad. “Live” need not equate to probable.

We expect the minutes to provide a clue as to whether the March policy statement, which again refrained from characterizing the balance of risks, represents a compromise between a more dovish Chair and relatively hawkish committee members. That is, we look once again to the minutes to judge the extent to which the committee remains sharply divided between those who would prefer rate hikes and those who would prefer for policy to remain on hold

RBS: The Fed Funds rate “dot plot” chart revealed that most FOMC members revised down their expectation for the appropriate path of the Fed Funds rate in March. But even if most members saw it appropriate to submit a more accommodative path for the Fed Funds rate, there does appear to be a rift of sorts between members over how strong the impact of a global growth slowdown will have on growth at home.

The March meeting minutes, which detail the discussion and debate at the meeting, may appear more balanced than Chair Yellen’s press conference as it will include the cautious views taken by many on the leadership and some of the more constructive outlooks taken by regional Fed Presidents.

But even so, given Chair Yellen’s dovish press conference in March reflected the view of the committee as a whole and most members felt it was appropriate to revise their dots lower, the core takeaways from the minutes may lean dovish.

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