The minutes from the March 14-15 Federal Open Market Committee (FOMC) meeting were released today, and in our reading of them, we'd say they skewed a little more to the hawkish side of things than the dovish side of things.
First, it was clear that there was more discussion about the approach to balance sheet normalization than there has been in meetings past.
To that specific end, there was an acknowledgment in these minutes that most participants judged that a change to the committee's reinvestment policy would likely be appropriate later this year provided the economy continued to perform as expected. Many participants, it was said, favored a reduction in the size of the balance sheet in a passive and predictable manner.
Additionally, most participants anticipated that gradual increases in the fed funds rate would continue as well if the economy evolved as expected, implying that a combination of rate increases and a balance sheet reduction could possibly happen simultaneously.
Secondly, in discussing the economic outlook, it struck us that there was more of an emphasis on the upside risks to members' economic projections, such as the prospect of expansionary fiscal policies, than there was to downside risks, like a significant correction in financial markets. In general, though, economic trends were discussed in a more favorable light.
There was the repeated stance that policy moves would be based on an assessment of economic and financial conditions.
It was the view of participants at the meeting that financial conditions remained accommodative, although it caught the attention of the stock market that "Some participants viewed equity prices as quite high relative to standard valuation measures... [and] It was observed that prices of other risk assets, such as emerging market stocks, high-yield corporate bonds, and commercial real estate, had also risen significantly in recent months."
There shouldn't have been anything too jarring in the view from some Fed officials that equity prices are quite high relative to standard valuation measures since many market pundits have been making the same observation for months (if not years). Nonetheless, it has the potential to resurrect valuation concerns in a new light considering it is being expressed by some Fed members at a time when almost all Fed members seem to see a path -- gradual though it might be -- to higher policy rates.