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According to Rabobank analysts, the minutes of the FOMC confirm that the Committee thinks it has everything under control.

Key Quotes

“The same forecasting framework that helped us pinpoint the end of the Fed’s hiking cycle in 2019 is also indicating that the Fed will have to cut rates all the way back to zero before the end of 2020.”

“According to the minutes, participants also think that the un-inversion of the yield curve suggests that the likelihood of a recession occurring over the medium term had fallen noticeably in recent months. However, as we explained before, prior to the last three recessions the yield curve un-inverted as well. This is largely a reflection of the Fed’s rate cuts, however it does not mean that the recession has been averted.”

“The SOMA manager noted that it may become appropriate at some point to implement an upward technical adjustment to the IOER rate and the ON RRP rate. If the Fed remains on hold for the coming months as far as the target range for the federal funds rate is concerned, a tweak to the IOER rate and the ON RRP rate could be the only action we may be looking forward to.”

“In our view it remains to be seen whether the fundamental uncertainty about the future of international trade and supply chains has been removed by the minimal US-China trade deal that can better be characterized as a truce. What’s more, a potentially more violent conflict is emerging as tensions between the US and Iran are on the rise.”