FOMC Minutes

August 16, 2017

Minutes from the July 25-26th Federal Open Market Committee policy meeting revealed compartmentalized thinking on the two policy normalization issues. Committee members were split over whether a recent dip in inflation should in and of itself delay the next interest rate increase but unified on the need to publicize a road map soon of guidelines for the process of reducing the central bank’s balance sheet that now exceeds $4.0 trillion.

Internal ICPG briefing notes from branch staffs presented an economic outlook that didn’t deviate much from views held at the prior FOMC meeting in June. Inflation is expected to be near the 2% goal next year and at it in 2019. Real GDP growth slightly exceeds its potential trend, making this happen. Of particular interest to currency market participants, the dollar is now seen following a lower trajectory than thought previously.

Less than a half year remains in Janet Yellen’s current four-year term as Chair of the Federal Reserve. President Trump could either appoint her for a second term, or select someone else. Gary Cohn, an economic adviser to the president with financial market experience, is widely considered the front-runner if he changes, but other mooted possibilities according to The Economist are John Taylor, a conservative academic, and Kevin Warsh, who served previously on the Board of Governors. While President Trump intentionally endeavors to be unpredictable, he’s been quite consistent in repudiating everything that President Obama favored. Some of that repudiation has been only rhetorical. Some of such needs legislation that hasn’t occurred. But on issues involving appointments, it would be hard to spin the retention of Yellen as anything other than something that Obama created that Trump doesn’t wish to change.

That pattern of management suggests that Yellen will be replaced even if close advisers tell the president to retain her. Since 1951, there have only been only seven Fed Chairs: Martin, Burns, Miller, Volcker, Greenspan, Bernanke and Yellen. Likewise, there have been just three presidents of the European Central Bank since it’s creation at end-1998 — Duisenberg, Trichet and Draghi — and four governors of Bank of England since 1983 (Leigh-Pemberton, George, King, and Carney). Point is these changes happen infrequently. And it’s an enormous deal when the leadership baton is passed at any of these institutions, both at the time of the announced change and in the early days of the new stewardship as markets watch closely both the style and ideological predilections of the new person in charge.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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