Fed Minutes Highlight Coronavirus Concerns and Uncertainty 8 Times

Wall Street Journal Take

The Wall Street Journal reports Fed Minutes Show Comfort With Economy, Rate Stance Last Month

Mish Take

Excuse me WSJ, but my take is a bit different.

The Minutes of the Federal Open Market Committee on January 28-29, 2020 show the Fed’s concerns about the global impact.

Eight Instances of Coronavirus

1. Over the final few days of the intermeeting period, financial markets responded to news of the spread of the coronavirus that started in China, which reportedly contributed to downward moves in Treasury yields and, to a lesser extent, U.S. equity prices. On balance, U.S. financial conditions became more accommodative over the intermeeting period, with equity prices rising notably.
2. Incoming data suggested that foreign economic growth slowed further in the fourth quarter to a very subdued pace. In the advanced foreign economies (AFEs), growth appeared to have remained weak as the manufacturing slump continued and a consumption tax hike in Japan led to a sharp contraction in household spending. In contrast, early GDP releases showed a pickup in growth in China and some other Asian economies, though news of the coronavirus outbreak raised questions about the sustainability of that pickup.
3. Late in the period, concerns about the spread of the coronavirus and uncertainty about its potential economic effect weighed negatively on investor sentiment and led to moderate declines in the prices of risky assets. On net, equity prices increased notably over the intermeeting period, while corporate bond spreads were little changed and yields on nominal Treasury securities declined. Financing conditions for businesses and households eased a bit further and generally remained supportive of spending and economic activity.
4. Broad stock price indexes increased notably, on balance, over the intermeeting period, with gains largely attributed to improved market sentiment about trade negotiations and a perceived lower probability of a disorderly Brexit. Late in the period, equity prices retraced some of their gains, as concerns about the spread of the coronavirus weighed negatively on risk sentiment.
5. For most of the intermeeting period, foreign equity prices rose amid progress on U.S.–China trade negotiations, generally favorable data on global economic activity, and the reduced risk of a disorderly Brexit following the U.K. general election. Late in the period, however, concerns about the coronavirus outbreak in China weighed on risk sentiment.
6. The broad dollar index weakened slightly over the period, predominantly against emerging market currencies. The Chinese renminbi appreciated notably against the dollar on positive trade policy developments, but this gain was more than undone late in the period by concerns about the coronavirus.
7. Participants generally judged that the current stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective. Nonetheless, uncertainties about the outlook remained, including those posed by the outbreak of the coronavirus.
8. Participants generally expected trade-related uncertainty to remain somewhat elevated, and they were mindful of the possibility that the tentative signs of stabilization in global growth could fade. Geopolitical risks, especially in connection with the Middle East, remained. The threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching.

Mohamed A. El-Erian Observation

Given the #coronavirus spillover risk,the #Fed minutes shed little light on future rate/balance sheet policies other than confirm (i) the higher risk to the outlook and (ii) the bias to ease
More notable:the #FOMC discussing pockets of excessive indebtedness/leverage/risk-taking. https://t.co/sCr5Bkk02y

— Mohamed A. El-Erian (@elerianm) February 19, 2020

Comment Worth Sharing

excellently stated https://t.co/3KqbGwyk7U

— Mike “Mish” Shedlock (@MishGEA) February 19, 2020

The comment was in reference to Wuhan Mother Speaks Out “No Beds, No Medicine, All Lies”

Fed Ahead?

Looking back to the end of January, the Fed actually seems a little ahead of the mainstream media on the threat.

Yet, I doubt anyone yet realizes the full impact.

Please note that Half the Population of China, 760 Million, Now Locked Down

From an economic standpoint, January say the Largest Shipping Decline Since 2009 and That’s Before Coronavirus impact hit.

Supply chain disruptions have barely started.

The Fed has every reason to be concerned.

Mike “Mish” Shedlock