FOMC minutes tonight will one to watch. The minutes could help explain how the Fed plans to communicate future policy decisions and shed light on how some policymakers could change their view on monetary policy if inflation and growth does accelerate as expected this summer.
Whilst Jay Powell has kept market speculation at bay, the minutes could allow participants to focus on when the Fed will tighten.
As detailed after the meeting statement, it looks as though the Fed is happy to let the economy run hot and won’t intervene to cool it down.
Even with growth in excess of 6.5% this year, 3% in 2022 and 2% in 2023; it still sees no need to tighten policy within the next almost three years.
This reflects what we know already about the Fed’s view on employment and inflation and the new outcome-based regime focused on absolute employment levels, not on the Philip’s Curve.
It also doesn’t really think the sharp bounce back this year is sustainable, meaning now is not the time to remove the punchbowl. US 10-year yields have retreated to under 1.64%-given the pullback from the recent highs there is a risk the market sees something in the minutes which signals it could tighten policy sooner than it is currently guiding.