Welcome to The Signal’s “Macro Minutes”, in which we analyze the most important communications from a specific region and provide insight based on our quantitative analysis of central banks.
Today’s FOMC Minutes carried a fairly hawkish* residual** score of 0.54, making them the most hawkish minutes since January of 2015. This hawkishness was certainly not a surprise after the December rate hike and FOMC statement residual score of 0.27, but it clearly signals that the committee is concerned that the economy may eventually overheat, accelerating the pace of hikes. The repeated references to a gradual rate path, however, tempered the tone of the minutes, as some participants were still concerned about downside risks.
Ultimately, the Prattle score of 0.54 provides a clear signal that these minutes are more than half a standard deviation more hawkish than the minutes have been recently. This score also corresponds with the general consensus that these minutes “lean hawkish***.”
The bottom line: today’s minutes reinforce the Fed’s hawkish trend while revealing the ongoing concerns of the committee.
The Signal Team
* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as 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.
** 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 the last ten residual scores.
***Source: Michael McKee, Bloomberg News
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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