US: June FOMC minutes introduce a new inversion measure – Standard Chartered

According to Sonia Meskin, US Economist at Standard Chartered, the FOMC June meeting minutes were largely in line with their and market expectations, with solid confidence in US economic momentum tempered to some degree by geopolitical and trade-related concerns.

Key Quotes

“The minutes also indicated that the Committee might favour the fed funds futures curve over the term spread as a recession indicator.

1.     Fed funds target rate (FFTR) projections upgraded on solid activity

2.     Risks to economic activity and inflation from trade tensions rise

3.     Yield curve inversion possible, but unlikely to stop hikes

One of the most interesting market implications, in our view, is that the Committee now appears to give less weight to the term spread as a recession predictor and more weight to the spread between the spot fed funds rate and fed funds futures. This is a somewhat novel approach and we are wary of its effectiveness.

4.     It’s OK if inflation ‘overshoots’ temporarily.”