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There was little initial reaction to the Minutes of the December FOMC meeting.  Perhaps of significance was the Committee’s fear that the central bank might be forced to quicken the pace of interest rate increases to head off higher inflation.

Specifically The Minutes stated almost all the participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years.”

As widely known, President Trump has promised higher spending on infrastructure, tax cuts and regulatory reform.  There was one comment about the sudden acceleration of monetary velocity and the potential of demand pull inflation suddenly accelerating perhaps morphing into cost push inflation because of the current unemployment rate.

Even against this backdrop, the Committee has not changed its prevailing view that any path of interest rate increases will be “gradual.”

In some regards The Minutes remind me of 1994 for at the end of 1993 the prevailing thought was similar to that of today.  In reality the Greenspan Fed almost doubled the overnight rate in 10 months and the benchmark 10-year Treasury surged in yield from 5.6% in January to 8% in November.

Tomorrow is the release of the December BLS employment report.  How will this data be interpreted?

Last night the foreign markets were mixed.  London was down 0.04%, Paris down 0.20% and Frankfurt down 0.20%.  China was up 0.21%,  Japan down 0.37%  and Hang Sang up 1.46%.

The Dow should open nominally lower ahead of today’s ADP Employment survey.  Oil is up about 1% following a larger than expected drawdown in inventories.  The 10-year is unchanged at 2.44%.

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Ken Engelke

Chief Economic Strategist Managing Director

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