FOMC minutes not that dovish

CIO Global Blog

12 Apr 2019

Today the Fed released minutes of the 20 March FOMC meeting. Prior to these minutes, the Fed had already provided plenty of information about its views. There was therefore only limited scope for the minutes to provide new insights, but there were still some interesting details that give them a somewhat less dovish tone.

The key takeaway from the March FOMC meeting was the Fed signaling that rates were likely to be held steady for all of 2019. The chart below shows the "dots" which indicate the appropriate fed funds rate at the end of each year as anticipated by the FOMC participants. The previous dots from the December 2018 meeting suggested two rate hikes this year, but by March, 11 of the 17 participants looked for no hikes.

It's important to keep in mind that at the time of the meeting, economic data was looking soft. For example, the Atlanta Fed GDPNow forecast for 1Q19 growth was just 0.6%, and nonfarm payrolls increased by only 20,000 in the February data. Despite this, FOMC members "generally expected economic activity to continue to expand, labor markets to remain strong, and inflation to remain near 2%." That's reflected in the dots for later years, with 12 of the 17 participants expecting at least one rate hike by the end of 2021.

Since the meeting, the economic data has improved overall. The GDPNow forecast for 1Q is now above 2% and payrolls increased by 196,000 in March. However, the market is still pricing in two rate cuts over the next two years. While it is possible that the Fed will cut rates if there is an economic downturn, nothing in the minutes suggests that FOMC participants think cuts are likely, and in our view market pricing is too aggressive.

Market expects rate cuts, Fed doesn't


Brian Rose, Senior Economist Americas, UBS Financial Services Inc. (UBS FS)