Fed analysis is matter of connecting the dots

April 9, 2014 06:29 AM

FOMC Minutes May Offer Insight Into "Dot Plot" Adjustment

The FOMC meeting minutes will be released later this afternoon at 1pm CT (2pm ET). Within the minutes we are hoping for at least some insight into the discussion and decision to adjust the Fed’s forward guidance.

 Recall at the March FOMC meeting, the Fed moved away from the 6.5% target on the unemployment rate, replacing the quantitative threshold with a more qualitative guideline. In other words, instead of a target, the Fed will gauge the health of the labor market through a more broad-based lens, taking the decline in the unemployment rate in the context of other labor market measures including the participation rate, average hourly earnings, and the work week.

We will also look for any clarity in what appears to be a large discrepancy between the Fed’s decision to downgrade their outlook for U.S. growth from 2.8-3.2% to 2.8-3.0% and the acceleration of some official’s expectation for the first rate hike per the famed “dot plot.”

December 17-18, 2013 FOMC meeting

March 18-19, 2014 FOMC meeting

Source: federalreserve.com

There is always great anticipation surrounding the release of the minutes but those heightened expectations for details and insight are rarely fulfilled. We expect the conversation prior to the statement's release was at the very least fruitful with varying opinions on the appropriateness of adjusting forward guidance, as well as differing opinions over the assessment of the recent (presumed) weather-related weakness.

At the very least, we expect the minutes to better reinforce the Fed’s dovish tone, something that was lost in the aftermath of the statement's release and the Q&A session that followed. This reaffirmation of accommodation is something the chairman attempted to do weeks later in a speech in Chicago. There remains "considerable slack" in the labor market she said, meaning "extraordinary commitment is still needed and will be for some time" in order to put Americans back to work. Despite some confusion in her first press conference following the March FOMC meeting, Yellen continues to tote a very dovish tone, supporting the notion the Fed will remain on hold well into 2015 and most likely 2016.


About the Author

Lindsey is the Chief Economist for Sterne Agee, specializing in the research and analysis of economic trends and activity, world economies, financial markets and fiscal policies. In addition to more than 10 years of experience, Piegza has published several academic papers in journals such as Harvard Business Review as well as in textbooks published by the Kellogg Graduate School of Management. Often quoted in the business press, Piegza is a regular guest on CNBC and Fox Business as well as national radio and other business news outlets.