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The minutes of the March FOMC meeting were released yesterday, which caused the Greenback to jump higher across the board even as geopolitical tensions continued to apply bearish pressure on the Greenback.

Overlay of USD Pairs: 15-Minute Forex Chart
Overlay of USD Pairs: 15-Minute Forex Chart

So why did the Greenback jump higher as a knee-jerk reaction? Well, here are key takeaways from the FOMC minutes that you need to know about.

1. Fed is upbeat on the economy

Fed officials were apparently unanimously upbeat on the U.S. economy, at least with regard to growth and inflation.

“All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months. In addition, all participants expected inflation on a 12-month basis to move up in coming months.”

As for the labor market, Fed officials were not unanimously upbeat on that. Even so, “Most participants described labor market conditions as strong.”

Those Fed officials who were not as upbeat on the labor market cited the “modest” pickup in wage growth “as suggesting that there was room for the labor market to strengthen somewhat further.”

Other than that, Fed officials also noted that “incoming data [suggested] some slowing in the rate of growth of household spending and business fixed investment.”

However, Fed officials think that these would only be “transitory“.

2. Fed positive on Trump’s fiscal policy

The minutes revealed that the Fed saw Trump’s fiscal plans as being net positive overall.

To quote directly from the minutes:

“Tax changes enacted late last year and the recent federal budget agreement, taken together, were expected to provide a significant boost to output over the next few years.”

FOMC members were only divided on the “magnitude and timing of the [positive] economic effects” of Trump’s fiscal policy, “partly because there have been few historical examples of expansionary fiscal policy being implemented when the economy was operating at a high level of resource utilization.”

3. Trade war is bad for the U.S. economy

The Fed wasn’t really that worried about Trump’s tariff plans. However, the minutes also revealed that:

“[A] strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy. Contacts in the agricultural sector reported feeling particularly vulnerable to retaliation.”

In other words, the Fed is more worried about what the other countries would do to the U.S. in response to Trump’s tariffs.

4. Fed leaning towards faster hikes

The Fed announced during the March FOMC Statement that its projected path for the Fed Funds Rate was unchanged in 2018, which means that the Fed is only pen to two more hikes before the year ends. And that disappointed some rate hike junkies.

However, the minutes had these juicy bits to share (emphasis mine):

“A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected.”

“Some participants suggested that, at some point, it might become necessary to revise statement language to acknowledge that, in pursuit of the Committee’s statutory mandate and consistent with the median of participants’ policy rate projections in the SEP, monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.”

This rather hawkish tilt is not really surprising, though. After all, the Fed’s dot plot did show that 7 of the 15 FOMC members were were open to at least three more hikes this year.

As marked below, the dot plot also shows that two Fed officials don’t want further hikes this year.

And the minutes shed some light as to why they weren’t too supportive of further hikes. To quote from the minutes:

A couple of participants pointed to possible benefits of postponing an increase in the target range for the federal funds rate until a subsequent meeting; these participants suggested that waiting for additional data to provide more evidence of a sustained return of the 12-month inflation rate to 2 percent might more clearly demonstrate the data dependence of the Committee’s decisions and its resolve to achieve the price-stability component of its dual mandate.

In short, these two Fed officials don’t want further hikes because they’re not convinced that the recent pickup in inflation is sustainable.

Overall, however, the minutes were relatively hawkish, which is likely why the Greenback jumped higher as a reaction.