Mohamed A. El-Erian with his "5 quick takeaways' on the Federal Reserve's FOMC Minutes today (article in full is here)
In brief:
1. FOMC worried markets were underestimating the possibility of an early rate hike... so they spelt out developments that could warrant an increase as early as June
2. Fed expects the labor market would continue to strengthen
- Boosting prospects for economic activity & inflation over the medium term
- Welcomed a fall in risks posed by global economic and financial conditions - this further enhances domestic economic outlook
3. There are qualifications ... June hike not definite
- Inflation still running Under 2%
- Global economy far from risk-free
- Brexit vote a big event risk
4. Market action before and the release of the minutes confirmed once again the extent to which financial asset prices remain sensitive to perceptions of the Fed's policy stance
El-Erian concludes with:
5. These developments yield another important conclusion: After a period of persistent dovishness and prolonged reliance on unconventional monetary policies, the Fed should now be characterized as a central bank that is inclined to gradually normalize policy absent a major domestic and international economic calamity. The likelihood of at least one rate increase in 2016 is almost a done deal, most probably this summer. The probability of this being followed a second hike, while less certain, should not be dismissed too readily.
