FOMC minutes in the limelight - Rabobank

According to the analysts at Rabobank, today’s main focus will be the Federal Reserve minutes of its March policy meeting, in which the FOMC decided to ‘suddenly’ hike rates.

Key Quotes

“Recall that, while until mid-February the FOMC members had indicated to err on the side of caution given the uncertainty surrounding (mainly) government policy, they took a leap of faith. In just a week or two, the Fed prepared markets for a rate hike in March. Today’s Fed Minutes might just give us an idea of where this sudden shift in FOMC thinking came from. It also raises the question whether this hawkish shift is here to stay, and whether this means discussions on further policy normalisation –i.e. reducing the QE portfolio– will gain traction in upcoming meetings.”

“We believe that the March hike may partly be based on the expectations that Trump’s administration will create a new impulse to the US economy. In that sense, the pressure on the new President to deliver is mounting. After failing to get his health care reforms approved by Congress, Trump is now aiming to swing the score in his favour by focusing on trade policy (i.e. tariffs) and on his big –no, huge– infrastructure plan.”

“Yesterday, the President promised to cut red tape in order to reduce the time it takes to start infrastructure projects. He reiterated his pre-election agenda to spend USD 1 trillion on roads and bridges. This is also where the market is growing skeptical: If Trump failed to muster the support in Congress for health care reforms –something all Republicans were waiting for, though perhaps not in this form– how likely is he to gather the backing he needs in a budget-minded Congress for USD 1trn in spending? Transportation Secretary Chao suggested yesterday that a draft bill will be presented in May, in time for Congress to take their first shots at it before the Fed convenes in June.”