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04 06 2016 | by Victor Xing | Central Banks

March FOMC minutes: divisions within the Committee

March FOMC minutes

The March FOMC minutes highlighted growing divisions between policy doves and hawks within the Committee.  While “many” participants favored a cautious approach to policy normalization, citing foreign risk factors and risk management concerns (such as asymmetric policy risk with rates only slightly above zero lower bound), “some other” policymakers also leaned toward a rate hike at the April FOMC if labor market strength and firmer inflation persist.  Interestingly, concerns over financial conditions appeared to have eased relative to the January FOMC minutes, perhaps due to weaker dollar and a rebound in risk assets.

Moreover, interpretations of recent inflation readings appeared to have evenly divided members of the Committee – “some” policymakers were encouraged by the nascent rise in inflation, while “some others” expressed skepticism on these readings’ sustainability (including the Fed Chair herself).  Such indications of policy divergence provided additional context to Chair Yellen’s dovish FOMC press conference and recent policy speech, which were followed by more sanguine comments from both centrist and dovish policymakers.

Breaking down the March FOMC minutes

March FOMC policy decision

  • Most participants judged it appropriate to maintain the range of the funds rate at 0.25 to 0.50 percent while noting global economic and financial developments continued to pose risks
  • A couple participants saw an increase in the target range to 0.5 to 0.75 percent as appropriate due to several reasons
    • Moderate economic growth despite developments abroad
    • Labor market strength
    • Firming inflation
    • Leveling-off of oil prices

Rate path ahead

  • A number of participants judged that the headwinds restraining growth and holding down the neutral rate would likely to subside only slowly
  • Several participants saw prudence in a cautious approach to policy normalization, and raising rates as soon as April would signal a sense of urgency that is inappropriate
  • Some other participants indicated that an increase in the target range at the Committee’s next meeting might well be warranted if incoming data remain consistent with their expectations


  • Some participants saw the recent increase in inflation as consistent with a firming trend in price growth
  • Some others saw the increase was unlikely to be sustained
  • Several participants indicated global dis-inflationary pressure or lower inflation expectation pose downside risks to inflation outlook
  • A few other participants saw risks of higher than anticipated inflation above the 2% objective

Inflation Expectations

  • Some participants concluded that longer-run inflation expectations remained reasonably stable
  • Some others were concerned that longer-run inflation expectations may have already moved lower
  • Several participants attributed softness in market-based inflation expectations likely reflect risk and liquidity premiums, as well as sensitivity to gasoline prices

Global risk factors

  • Most participants saw foreign economic growth at a slower pace than previously expected, thus restrain growth in U.S. exports and dampen aggregate demand
  • Many participants saw global economic and financial conditions still posed appreciable downside risks to outlook
  • Many participants indicated that the heightened global risks and the asymmetric policy response warranted caution in policy normalization
  • Some noted limited policy response to shocks given low policy rates in most advanced economies
  • A few participants noted foreign central bank policy responses likely helped mitigate downside risks to global outlook

Risk management considerations

  • Many participants noted that the FOMC continued to have little room to ease monetary policy through conventional means in response to negative shocks, while policy remain scalable in response to upside inflation surprise.  This argues for prudence in reducing policy normalization
  • Several participants saw downside risks from abroad, which argued for caution in policy normalization

Financial conditions

  • Participants saw investor sentiment rebounded, and domestic and global financial conditions eased on net over the intermeeting period
  • Several participants cited wider credit spreads as a factor that was likely to restrain growth in demand
  • Several participants expressed the view that factors that led to a sharp, though temporary, deterioration in global financial conditions earlier this year had not been fully resolved and thus posed ongoing downside risks

Labor market conditions

  • Participants cited strong payroll gains and a further tick down in the U3 unemployment rate.  Broader measures of labor force underutilization had also shown progress
  • Some participants judged current labor market conditions were at or near those consistent with maximum sustained employment
  • Some other participants judged that the economy had not yet reached maximum employment, citing still-high involuntary part-time worker and low level of employment-to-population ratio for prime-age workers, as well surprisingly limited signs of higher wage growth

Consumer spending

  • Participants noted moderate average growth of consumer spending over recent quarters
  • Participants noted motor vehicle sales remained particularly strong, partly due to incentives
  • Participants generally expected consumer spending to continue to rise moderately

Business activities

  • Several participants noted recent softness in business fixed investment and signs that sluggish growth would continue


  • Participants anticipate anticipated that activity in the housing sector would continue to expand this year
  • Some participants noted weakening housing activity in regions adversely affected by the decline in energy prices
  • Some participants reported that contacts were generally upbeat about outlook for housing construction

Market reactions

Financial markets initially perceived Bloomberg headlines as less dovish than expected, but investors subsequently noted uncertainties faced by policymakers as hurdles for a concerted effort to break away from the current policy stance of “watchful waiting.”  Thus, dollar failed to reverse weakness, and 5s30s curve remained largely unchanged.  Oil prices enjoyed another boost from bullish inventory data to finish at session high, and risk assets did well (led by the energy sector).  Fed funds futures are pricing in about 3/4 of a hike in 2016

March FOMC minutes
Dollar traded soft into the close
March FOMC minutes
Five year Treasury futures outperformed ultra bond futures into the close
March FOMC minutes
Crude oil (WTI) enjoyed yet another boost from bullish inventory data




Next article04 05 2016 | by Victor Xing | Economics

Data recap: March ISM and February JOLTS