Powell Sees Recovery Ahead of Schedule, Bank Dividends to be Restored In June

When Fed Minutes are released and the market doesn’t react that’s generally a good thing. Despite the mini-tantrums of the first quarter over rates, the news from the Fed this week appeared to help rates settle down, which may have helped the mega-cap technology names regain some of their wings. The Federal Reserve released the meeting minutes from their recent mid-March meeting on April 7th. The Fed changed its tune very little, despite recent expression of some optimism in other forums. For instance, it continued to stress that it will both keep interest rates near zero and continue the current rate of asset purchases until “substantial further progress” has been made toward the targeted levels for employment and inflation. Importantly, the Fed will also view temporary price increases associated with the unprecedented and widescale opening of the economy as temporary.

We may have forgotten with everything else going on that the Fed is still providing unprecedented policy support. They are saying they will not try to slow down the economic boom that is coming until maximum employment and inflation targets have been reached. It becomes clearer and clearer with each official Fed communication that a key feature of the new Adjustable Inflation Target (AIT) framework is the willingness to be behind inflation rather than ahead of it. This is a significant departure from past Fed behavior and it essentially means that the neighbors are all on board, and loud music and many punch bowls will be permitted, from a monetary perspective, until the wee hours of the morning. This is indeed unprecedented and surely is bullish, at least in the short and medium term.

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