Earlier preview of the minutes: UK CPI and Fed minutes due today.

BMO:

The FOMC's May 2nd policy statement gave several nods to inflation. Apart from acknowledging that the annual change has moved close to target, it said that the Committee was no longer "monitoring inflation developments closely", and inserted the word "symmetric" in front of the inflation objective.

  • We judged the first point meant that the FOMC had become more confident in its outlook and would therefore continue along its current gradual normalization path even in the face of transitory data setbacks.
  • We judged the second point meant that the Fed anticipates inflation might mildly drift above the 2% target, and we shouldn't expect any deviation from its gradual tightening course as a consequence.
  • We'll be scouring the Minutes for evidence supporting these conclusions and, of course, clues on a probable rate hike next month.

Deutsche Bank:

  • As a reminder, the statement from that meeting moved incrementally in a more hawkish direction and also towards brevity. It also included use of the word 'symmetry' in relation to the 2% inflation objective, so it'll be interesting to see if this is fleshed out at all.
  • Indeed, our US economists saw the meeting statement as a first step towards altering the balance of risks language and expect to learn more from the minutes. As we know, since the minutes we have had some disappointing inflation readings in the US (CPI and average hourly earnings), however, bond yields have continued to march higher in line with inflation expectations.

Nomura:

The May FOMC statement provided little new information for our views on the likely trajectory of policy. However, we expect that the minutes may reveal a more nuanced discussion about the changes to the inflation language in the statement (emphasizing "symmetric" and dropping "monitoring inflation closely"). Moreover, the minutes will likely show the Committee discounted the slight deceleration in Q1 real GDP growth while highlighting the positive US economic outlook.

  • For policy, we continue to expect a total of four rate hikes this year, one more than the current SEP median for 2018.
  • The May minutes will likely include some signal of the widely expected June hike and potentially give additional information as to whether the Committee is likely to revise up its 2018 rate forecast.

For other discussions on the outlook, language on US trade policy and financial conditions will be of particular interest, especially given the slight softening of business confidence surveys over the past few weeks.

  • Moreover, with policymakers frequently referring to a potential inversion of the yield curve after the May FOMC meeting, the minutes could show an in-depth discussion of the policy implications of an inverted yield curve.

Finally, the March minutes noted a discussion about revising statement language in the future to acknowledge monetary policy would eventually move from an accommodative to neutral or restrictive stance. Combined with San Francisco Fed President Williams' recent comments about revisiting the statement's forward guidance language, any additional discussion on the statement in the May minutes would be of note.

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