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FOMC Minutes Show 'Dovish Slant'

April 9, 2014 3:22 PM EDT

Stocks gained Wednesday after the Fed released minutes from the FOMC March 18-19 meeting. In the view of Joseph LaVorgna, Deutsche Bank Chief US Economist, the minutes had a "dovish slant."

"The focus on labor slack by several meeting participants gives the overall tone of the minutes a dovish slant—particularly on the heels of Fed Chair Yellen’s clearly dovish remarks last week, when she stated that the economy and labor market were far from normalized. Additionally, policymakers were adamant in emphasizing that the change of guidance from quantitative to qualitative did not reflect a change in the Committee’s policy intentions. Echoing comments Chair Yellen made during her post-meeting press conference, the minutes also discounted the modest upward drift in the fed funds 'dot plot,' said LaVorgna.

"While there were no significant surprises in the March FOMC minutes, the broad-based focus of meeting participants on labor market slack and the concern among some policymakers about the market’s interpretation of a slightly more hawkish “dot plot” signify that overall, the Committee continues to have a clear dovish inclination. It will take considerable strengthening in the labor market—including both a materially lower unemployment rate and greater evidence of wage inflation— to change sentiment on the Committee," he added.

Notably absent from the minutes were the Janet Yellen's off the cuff remarks after the Fed statement on March 19th that rate hikes could start "six months” after QE ends.

"The absence of discussion of “six months” does suggest it was a Yellen throwaway rather than the product of extended discussion," Citi's Steven Englander said. "By and large, the Minutes convey the dovishness that most investors expected going into the March 19 meeting -- so they have been surprised both ways - March 19 hawkishness and the indications in the Minutes that they didn’t mean the hawkishness."

Englander views the minutes as great for emerging markets, great for equities, nasty for USD across the board "and conveys a Fed with more dovishness and less concern over asset markets or tightening capacity than the market (or I) expected."



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