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Sonia Meskin, US economist at Standard Chartered, suggest that the FOMC May meeting minutes were largely in line with their expectations: they indicated increased consensus around the interpretation of recent core inflation weakness as temporary, reflected a more upbeat economic outlook from many members in light of easing risks from Europe and China as well as a stronger-than-expected Q1-2019 US GDP print, and emphasised a continued patient policy stance.

Key Quotes

“We interpret the latter to mean that the next FOMC move is as likely to be a rate increase as a rate cut. The hawks’ voice was more prominent in the minutes than the doves’; this means a hike is slightly more likely than a cut.”

“Market reaction in the immediate aftermath of the minutes release appears consistent with this view, though short-term rates continue to indicate that market participants assign a higher probability to rate cuts than rate hikes.”

“In line with the May minutes, Fed officials’ commentary on inflation in recent weeks has indicated that downside risks to inflation expectations are a concern, though insufficient for now to induce a dovish policy stance. Indeed, survey measures of inflation expectations have been broadly stable in recent months, even as longer-dated breakeven rates declined in tandem with lower CPI prints.”

“The bigger challenge for the FOMC will be supporting inflation expectations in the next downturn. Since H2-2014, when the FOMC announced its policy normalisation principles even as survey-based inflation expectations gapped lower, consumer inflation expectations appear to have stabilised at a lower level while expectations from the Survey of Professional Forecasters have rebounded. It is worth emphasising, however, that both remain comfortably above the Fed’s 2% objective.”