The Fed minutes are out and for once did little to markets. Here’s why:
Participants expressed a range of views about how they would assess the outlook for inflation and when they might deem it appropriate to begin removing policy accommodation. It was noted that there were no simple criteria for such a judgment, and, in particular, that, in a context of progress toward maximum employment and reasonable confidence that inflation will move back to 2 percent over the medium term, the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation.
Further improvement in the labor market, a stabilization of energy prices, and a leveling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up. Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting.
However, others anticipated that the effects of energy price declines and the dollar’s appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.
Clear as mud but that is in itself slightly dovish given a clear case will be needed to tighten. Late 2015 or early 2016 remains my base case as the oil pig passes through the inflationary python.
