Fed Minutes Released: Stocks Decline

The Fed expressed worries about the potential trade war with China saying there is downside risk to the economy because of it. The Fed's updated reaction would be interesting to hear since so much has happened since March 21st. I don't think the tariff battle will cause any change to monetary policy unless there are further actions. I think cyclical weakness has a better chance of causing the Fed to hike rates fewer times than expected.

Fed About To End Accommodation Period

One of the big changes discussed in the Minutes was whether the Fed should change the language of its policy from accommodative to neutral or restraining. This is interesting because it will affect how the market reads policy guidance. However, I think the Fed is already neutral on policy. The Fed funds rate is 1.69% and the core PCE was up 1.6% year over year. To me, that is neutral policy even though the Fed funds rate is much lower than previous cycles. You also need to take into account the QE tightening policy path. As you can see from the list below, the Fed is ramping up its unwind from $20 billion per month to $30 billion per month in April. It will get to its peak of $50 billion per month in Q4. Including QET, the Fed is at a neutral policy and will shift to restraining the economy sometime in the next 12 months. If the Fed hikes rates 4 times this year, it will hit restraining in 2018.