June FOMC Minutes and Payrolls


United States Employment Situation
Prior: 138,000
Consensus: 170,000
Consensus Range: 140,000 to 200,000
Actual: 222,000
Bonds are in bear market (Dahlio echoes Bill Gross)
“The directions of policy are reversing,” with central banks slowing the flow from their proverbial punch-bowls of stimulus, Dalio, chairman of Bridgewater Associates, the world’s largest hedge fund, wrote in a July 6 note. “Our responsibility now is to keep dancing, but closer to the exit and with a sharp eye on the tea leaves.” - BBERG

ADP/Moody’s: 158,000 private-sector jobs created in June 2017
Expectations: 180,000 jobs

ADP/Moody's count is estimate and was off the previous month by over 50,000. Actual results come tomorrow (6/7/2017)

Fed Minutes of June 2017 Meeting
Reducing Fed’s $4.5 Trillion balance sheet

Several officials want to start by end of August and others want to wait until year end

No timetable released

Parameters: $10 billion monthly in quarterly increments until its $50 billion monthly; will continue until balance sheet is about $2-$2.5 Trillion

Several Fed officials felt the reduction in the balance sheet and associated policy tightening "was one basis for believing that...the target range for the federal funds rate would follow a less steep path than it otherwise would." Some others, however, said the shedding of bonds should not figure heavily in deciding monetary policy.

Rate hike

Some officials stated the inflation weakness raised concern regarding the current implied path of rate hikes
Economists largely expect the Fed to begin shrinking its balance sheet at its September meeting before raising rates again at its final meeting of the year in December.

Low inflation rates

Considered temporary and likely to rise over long run to targeted 2%

Reason: “idiosyncratic factors, including sharp declines in prices of wireless telephone services and prescription drugs, and expected these developments to have little bearing on inflation over the medium run”

However, several participants expressed concern that “progress...might have slowed and that the recent softness in inflation might persist,” the Fed said in the minutes.

Concern over lack of effect on markets

Despite four interest rate hikes, gov’t bond yields have declined in recent months and stocks have continued to gain

Low bond yields, they reasoned, could be the product of "sluggish longer-term economic growth" as well as the Fed's $4.5 trillion balance sheet of bond holdings.

On stock prices, FOMC members "suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly; a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability."