Folks lining up on both sides of the fence.
My Fed Hawk-o-Meter, after applying its analytical magic to the just
released minutes of the FOMC meeting on June 18 and 19, dipped by
one point to 20, hovering now in the lower range of the red-line zone,
indicating that a rate cut is not yet a clear decision:
My fancy-schmancy Fed Hawk-o-Meter analyzes the minutes of the Fed’s
meetings for tell-tale signs that the Fed sees the economy as very strong or
overheating (rate hike); as strong but not overheating (rate unchanged); or
as spiraling down (rate cut).
It attempts to clarify in a quantitative and visual manner what the Fed
wants to communicate to the markets for the next meeting. The
Hawk-o-Meter does so by counting how often “strong,” “strongly,” and
“stronger” appear in the minutes to describe the current economy. In the
minutes of the June 18-19 meeting, those words appear in this sense 20 times,
down from 21 times in the prior meeting minutes.
The three-meeting moving average of the Hawk-o-Meter reduces the
volatility in the “data” and clarifies the trends:
The average mentions of “strong,” “strongly,” and “stronger” per meeting
minutes between January 2012 and December 2017 was 7.4 times. The 20 mentions
in the June meeting minutes represented an increase of 170% from the pre-redline
average.
“Strong,” “strongly,” “stronger” appeared in phrases such as
these:
- “The information available for the June 18–19 meeting
indicated that labor market conditions remained strong”
- “Federal government purchases were being boosted by strong
increases in defense spending”
- “Gross issuance of corporate bonds was strong in
May”
- “Issuance in the institutional syndicated leveraged loan
market was subdued in April but rebounded in May, reflecting strong
issuance beyond that associated with refinancing of maturing leveraged
loans”
- “A couple of participants, however, pointed to signs
that investment might pick up, including reports from some contacts that
their orders and shipments remained strong and that some contacts
planned to hire more workers”
- “Consumer spending had been solid, supported by a strong
labor market and rising incomes”
- “In their discussion of the labor market, participants
cited evidence that conditions remained strong”
- “Reports from business contacts pointed to continued strong
labor demand, with many firms planning to hire more workers”
- “While strong labor markets and rising incomes
continued to support the outlook for consumer spending…”
- “The Committee retained the characterization of the most
likely outcomes as “sustained expansion of economic activity, strong
labor market conditions, and inflation near the Committee’s symmetric 2
percent objective” but added a clause to emphasize that uncertainties
about this outlook had increased.
I scrubbed two false positives:
The words “strong,” “strongly,” and “stronger” actually appear 22 times in
the minutes, but in two instances, they were used in a clearly different
context that made them “false positives,” and I scrubbed those two from the
tally:
“Total nonfarm payroll employment expanded solidly, on average, in April
and May; however, job gains slowed sharply in May after a strong increase
in April.”
“Some participants suggested that although they now judged that the
appropriate path of the federal funds rate would follow a flatter trajectory than
they had previously assumed, there was not yet a strong case for a rate
cut from current levels.”
That was quick: “Patient” disappears.
And the new key word, “patient,” introduced with such market-moving oomph
in December, has essentially disappeared, after having been used in the prior
minutes to indicate that the Fed would also be patient with rate cuts. The
word seems to have served its purpose and is being retired. It was mentioned
only once, and only to show that the word would be “removed” from the
language:
“In describing the monetary policy outlook, members agreed to remove the
“patient” language and to emphasize instead that, in light of these
uncertainties and muted inflation pressures, the Committee would closely
monitor the implications of incoming information for the economic outlook and
would act as appropriate to sustain the expansion, with a strong labor market
and inflation near its symmetric 2 percent objective.”
The above sentence also expresses the Fed’s intention to watch the data
before moving on rates, and that there were not yet any foregone conclusions:
Additional weak data could push them one way, and additional strong data
could push them the other way.
Where is the Fed’s “U-Turn” that Wall Street promised us? Read...
Fed
Sheds $38 Billion in Treasuries and MBS in June, Dumps MBS at Record Pace,
Exceeding “Cap” for First Time
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