US: December FOMC minutes have the potential to read relatively hawkish - TDS

Research Team at TDS suggests that the December FOMC minutes have the potential to read relatively hawkish after it was uncovered by the dotplot, that the majority of the committee now expects at least 3 rate hikes in 2017 (11 participants vs 7 in September).

Key Quotes 

“This was driven by four of the more dovish participants upgrading their rate path to three hikes and all participants anticipate at least one hike next year. Even the uber-dove Bullard penciled in an additional rate hike to his policy trajectory on account of greater upside risks to the economic outlook. Thus, we expect the discussion to center around the risk of overshooting the Fed's inflation target, which largely explains the hawkish shift in our view. The two fundamental drivers that have raised the scope of overshooting are diminished levels of labor market slack coupled with the prospect of fiscal stimulus. The latter when implemented in an economy near or at full employment has the potential to act as an inflationary demand shock, driving the economy beyond full employment conditions and thereby putting upward pressures on wages and prices.”

“We expect these two themes of labor market slack and fiscal stimulus to drive the discussion, leading some members to emphasize a pre-emptive policy stance over a data-dependent, patient one. This is an indeed a striking shift from the Committee's prevailing cautious stance and implies that the three hikes penciled in for 2017 is not out of sight, barring significant disruption in global financial markets.”