HALISTER1: Fed Reinvestment Policy Could Be Back on Table Sooner: Jefferies

Fed Reinvestment Policy Could Be Back on Table Sooner: Jefferies

(Bloomberg) -- Minutes of FOMC’s Dec. 13-14 meeting show policy makers foreseeing chance that rate hikes could exceed current FOMC projections, and reinvestment policy could be back on table sooner than expected due to upside risks, Jefferies economists Ward McCarthy and Thomas Simons write in note Wednesday.
  • NOTE: Minutes reveal that several on FOMC said circumstances that might warrant changing path of fed funds rate may also have implications for reinvesting proceeds from maturing USTs and principal payments from agency debt/MBS
  • FOMC appears to be “waving a yellow flag” that both economic activity and inflation may exceed its expectations, especially if there’s significant fiscal stimulus enacted in 2017
  • It’s been long time since upside risks dominated FOMC discussion, and downside risks were “secondary consideration”
  • FOMC beginning to “awaken” to idea that policy may fall behind the curve, or may already be behind the curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Thomas Simons (Jefferies LLC)
Ward McCarthy (Jefferies LLC)

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