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Andres Svendsen, an analyst at Nordea Markets explained that the Fed is getting more worried about trade wars even if actual projections are still little changed.

Key Quotes:

  • “Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending.”

Regional Fed Presidents are reporting building inflationary pressures.

  • “The generally  favorable  outlook for inflation was buttressed by reports from business contacts in several Districts suggesting some firming of inflationary pressures; for example, many business contacts indicated that they were experiencing rising input costs, and, in some cases, firms appeared to be passing these cost increases through to consumer prices.”

Discussions about the neutral rate are intensifying and additional language change seems likely in the coming quarters.

  • “”¦a number of them [participants]noted that it might soon be appropriate to modify the language in the post-meeting statement indicating that “the stance of monetary policy remains accommodative.”

Discussions continue on the importance of the flattening of the yield curve. A wide range of reservations about the validity of an inverted yield curve as a recession pre-warning in the current environment was mentioned, but it will be watched.

  • “A number of participants thought it would be important to continue to monitor the slope of the yield curve, given the historical regularity that an inverted yield curve has indicated an increased risk of recession in the United States.”

The discussion about raising the interest rate on excess reserves (IOER) by 20 bp and thus narrowing the corridor for the effective Fed funds rate was very short, but will gain traction at the next meeting given that the effective rate has remained in the upper-end of the corridor following the June meeting despite the technical adjustment.

  • “A few participants suggested that, before too long, the Committee might want to further discuss how it can implement monetary policy most effectively and efficiently when the quantity of reserve balances reaches a level appreciably below that seen recently.”