FOMC minutes confirm my view

Genevieve Signoret

Letter from the President

In the minutes for the FOMC meeting of January 27-28, we read evidence that FOMC discussions are moving in the direction of postponing the start of interest rates normalization to beyond June 2015. In previous minutes, members had seemed to discount the importance of the recent sharp drop in inflation compensation in the U.S. Treasury yield curve: the nominal Treasury yield spread over inflation-protected Treasury yields in the 5-10-year range. They’re no longer doing so. Also, the minutes list data trends members would want to see before raising rates. Several mentioned rising or at least stable core PCE inflation and rising nominal wage inflation. We don’t expect them to see this before June.

This reading of ours does not change our view but rather it confirms it: we have long forecast the first rate hike in the second half of 2015, not before.

Previous Letters from the President

Revised portfolio strategies (2015 02 01)
2015–2016 Outlook: Low for Long (2015 01 17)
Still bullish on equity, happy with 7–10-year bonds (2015 01 08)
While we huddle, here’s my guest column on oil (2015 01 02)