CIBC Research comments on today’s FOMC minutes from the May-3rd meeting. In particular, CIBC outlines the following 3 takes from the minutes:
1- The FOMC members put their weight on strong employment growth rather than weak GDP in Q1, a reason why the Fed statement continued to lean towards rate hikes ahead.
2- The weakening in the dollar and longer term yields were cited as an easing in financial conditions, and we view that as a factor tilting towards a rate hike in June. Indeed, a “few” members wanted to hike in May but didn’t dissent given the desire not to shock the market with an unanticipated hike
3- One new item: the FOMC discussed a plan to have the balance sheet reduction done through setting a new cap each quarter on how much of the balance sheet would roll off, with the rest of the maturities/coupons reinvested, and the initial cap set quite low
“More gradualism and fine tuning, in other words, by a Fed that wants to carefully manage how the yield curve responds,” CIBC concludes.
Source: CIBC Economics – CIBC Capital Markets
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