Fed Minutes Data Suggests March Hike Unlikely

  • Wednesday, February 22, 2017

Nearly every news article covering today’s FOMC minutes focused on the possibility of a rate hike “fairly soon.” Despite the widespread interpretation of this phrase as a hawkish signal, Prattle identified these minutes as just slightly dovish*, but well within the neutral range (residual** score -0.08). Like many, we anticipated a slightly hawkish tone, so this slightly dovish score further rules out the possibility of a March hike.

A key takeaway from the minutes is that the Committee forecast has not changed since December, though policymakers are weighing significant upside and downside risks (like fiscal stimulus and the potential for weaker foreign economies). The minutes even allude to concern about a strengthening dollar, which would be exacerbated by hiking rates faster.

The bottom line: both qualitative and quantitative signs point to the Fed holding rates in March while continuing to project 3 hikes in 2017, though 2 hikes looks just as likely.

The Prattle Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as the basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness. Aggregate trend is the overall sentiment of the bank calculated using a LOESS fitting of trend using a 12-month window.

** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications. Momentum is the average of the last ten residual scores.

Disclaimer: the forecasts provided herein are based upon sources believed by Prattle Analytics, LLC D/B/A Prattle, to be reliable and to be developed from models which are generally accepted as methods for producing economic forecasts.

Prattle cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice.

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