S&P 500 
KEY POINTS:
* MANY PARTICIPANTS SAID IT WOULD LIKELY "SOON" BE APPROPRIATE TO RAISE INTEREST RATES
* PARTICIPANTS GENERALLY EXPECTED FURTHER GRADUAL HIKES
* PARTICIPANTS GENERALLY NOTED THERE WAS CONSIDERABLE MOMENTUM IN HOUSEHOLD AND BUSINESS SPENDING
* PARTICIPANTS SAID THEY GENERALLY EXPECTED THAT U.S. GDP GROWTH WOULD SLOW IN SECOND HALF OF 2018 BUT REMAIN ABOVE POTENTIAL
* MANY PARTICIPANTS NOTED WOULD LIKELY BE APPROPRIATE IN "NOT-TOO-DISTANT FUTURE" TO NO LONGER REFER TO MONETARY POLICY STANCE AS ACCOMMODATIVE
* MOST PARTICIPANTS SAID ESCALATION OF TRADE DISPUTES WAS A POTENTIALLY CONSEQUENTIAL DOWNSIDE RISK FOR U.S. ECONOMY
* ALL PARTICIPANTS POINTED TO ONGOING TRADE DISAGREEMENTS AND PROPOSED TRADE MEASURES AS IMPORTANT SOURCE OF UNCERTAINTY AND RISKS
* PARTICIPANTS SAID LARGE-SCALE AND PROLONGED TRADE DISPUTE WOULD LIKELY HAVE ADVERSE EFFECTS ON BUSINESS SENTIMENT, INVESTMENT AND EMPLOYMENT
* FED CHAIRMAN JEROME POWELL SUGGESTED U.S. CENTRAL BANK WOULD LIKELY RESUME DISCUSSION OF OPERATING FRAMEWORKS FOR MONETARY POLICY IN THE FALL
COMMENTS:
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK:
"We were looking for any sort of hint that they’re thinking about balance sheet, that discussion is interesting as it mentioned the Fed chair by name, specifically. That’s interesting to us because of what’s been going on in the very front-end of the curve, in the money market space, and the fact that the effective funds rate continues to drift higher.
"It certainly seems that it’s caught their attention. It’s not market moving per se, but it does suggest that they are getting to a point where perhaps they have to rethink both the structure of how they want to set monetary policy and whether they are having an adverse impact on the market.
"I think given that they wish to have a discussion in the fall, this is one of those subjects that requires quite a lot of study because it’s a very, very long term issue, it’s not going to happen any time soon. But they fact that they are talking about it does hint to markets that they are thinking about it and that perhaps balance sheet runoff will end a little bit earlier than the market had originally anticipated.”
MICHAEL JAMES, MANAGING DIRECTOR, EQUITY TRADING, WEDBUSH SECURITIES, LOS ANGELES:"I don’t think there was really a big surprise. The expectations were for almost what they said, that there’s likely to be two rate hikes before the end of the year, the economy continues to stay on track. There have been a few areas weakness but I think those are relatively well-known. And I don’t think there were necessarily any surprises that came from this for investors.”
“There wasn’t anything that stood out. The nuances, the tone to the comments, the weaknesses that they called out. None of these were outliers that should cause any surprise for the majority of investors, in my opinion.”
JEFF GREENBERG, CAPITAL MARKETS ECONOMIST, J.P. MORGAN PRIVATE BANK:
"I read these as further confirmation that Fed is firmly in its tightening mode and is very unlikely to be deterred from that path. They continue to highlight the risk but importantly now the risks are in both directions. Either you can get more growth in the amount of anticipation of fiscal stimulus but also there is greater downside risk coming from trade concerns. Neither of them seem sufficient enough to slow them down. It further confirms they are going to hiking again in September and if nothing changes, again in December and continue to hike into 2019."
DAVID SANTSCHI, DIRECTOR, LIQUIDITY RESEARCH, TRIM TABS INVESTMENT RESEARCH, SAN FRANCISCO:
"For the Fed in general, I know that some other folks in the markets have thought they might pause fairly soon. I don't think that's going to happen. I think the Fed will keep right on tightening around a quarter point every other meeting or so until something breaks, asset prices drop or something really negative happens to the U.S. economy.
"I don't think the action in emerging markets the last couple of weeks is anything that's going to change their course. They'll keep tightening until something breaks. In general the Fed follows the markets."
"They did seem to be very concerned about trade and tariff issues. That language was pretty strong and said something like 'all participants though this would be disruptive.'"
JASON WARE, CHIEF INVESTMENT OFFICER, ALBION FINANCIAL GROUP, SALT LAKE CITY, UTAH:
"It solidifies the fact that we're likely to see another hike next month. The question now is whether we get that fourth hike in December. There were some comments about mounting concern over trade policy. The market currently is projecting a little better than 50pct for a hike in December, the Fed seems to be on the fence about December, so that's where everyone is paying attention to."
"I thought it somewhat interesting that there was a discussion about removing the term accommodative, so it sounds like they have agreed that fairly soon they may need to scrap accommodative because the level of rates are getting closer to neutral. There's been a lot of discussion in the market about what the neutral policy rate is at the Fed. That to me is dovish, it suggests to me the trajectory of the terminal rate - where the Fed may begin to pause so they don’t overtighten - may be closer than the market thought."
"The other thing is the yield curve. I expected a little more discussion about the yield curve in the minutes. The yield curve limits the Fed's ability to push rates beyond a certain level, unless you see long term rates rising more quickly, they could potentially invert the yield curve if they thrust the accelerator on a couple more hikes here, and I don't think Powell would agree to rate hikes that invert the yield curve.”
GREGORY DACO, HEAD OF U.S. MACROECONOMICS, OXFORD ECONOMICS, NEW YORK:
"In general, these minutes tilt toward bullish on the economic side. The Fed is acknowledging the strength of the economy and continue the likelihood of further rate hikes. We expect two more rate hikes in 2018 with the next one in September. They do discuss the upside and downside from the fiscal stimulus and allowing monetary policy to remain accommodative for a shorter period of time. It seems the Fed overall is leaning toward further tightening. The complexity with the trade tension is not something not easy or standard for the Fed. It’s a standard stagflation shock. If trade tension escalates, the Fed might put a December rate hike on hold and wait to see what the policy implications are. There are encouraging news between the U.S. and China and U.S. and Mexico at the moment."
HUGH JOHNSON, CHAIRMAN HUGH JOHNSON ADVISORS, ALBANY, NY:
"I think the number one thing is there weren't any surprises in the minutes and it looks as though to me, after they mentioned all the upside and downside risks or exposures, that they're likely to raise interest rates in September and I don't think anyone is going to come away with a different view.
"Turkey was not a factor in this meeting. That might be the only difference between what they discussed at that meeting and what they might discuss today."
"It keeps a September rate hike in play and leaves the door open in December, which is a big question mark."
JOHN BREDEMUS, HEAD OF CAPITAL MARKETS, ALLIANZ INVESTMENT MANAGEMENT:"They’re quite pleased with themselves at this point. They’ve fought a long hard battle to get inflation up to their target, and now it’s there. And now they just have to stay ahead of it."
"They’re certainly going to raise rates in September. And they continue to debate the yield curve and whether it’s a predictor of recession or not."
RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS:
"I don't really see many surprises at all. The next rate hike will happen on 9/26 and of course the futures market has a 100 percent probability of that."
"There does seem to be just a wee bit of concern about rising inflation and also some concern about ongoing trade spats, but again, no surprise there."
"The (stock) market reaction is pretty benign. I suspect this really won't have any impact overall."
JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON:
"The minutes offered a mix of optimism and caution. On the one hand, the minutes telegraphed an imminent rate hike. Yet the minutes also flagged a higher level of concern about a potential trade war damaging the economy. The Fed expecting slower H2 growth stopped short of cementing two more rate hikes. Consequently, it's not surprising to see the dollar remain on its back-foot."
SHAUN OSBORNE, CHIEF FX STRATEGIST, SCOTIABANK, TORONTO:
"That another rate hike is coming is not too surprising. But the FX market did react negatively, with the dollar falling, to cautious comments on trade and emerging markets, as the Fed flagged the downside risks. Perhaps the market is extrapolating that it could mean a pause in tightening. But the dollar has been on defensive generally, that the market is taking any excuse to add to shorts."
MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON:
"The committee had a discussion around the affective lower bound, meaning how far they can have interest rates be low, and they did raise some concerns regarding if we did reach that lower bound in the future did they have the right policy tools to address those risks."
"The market is going to focus more on what Powell has to say at Jackson Hole. That’s going to be more timely, more relevant and provide more signals to the future of monetary policy than the meeting minutes which happened a few weeks ago."
"The market is largely discounting these meeting minutes, because they’re getting ready for the real show which is likely to take place later this week when Powell gives his speech at Jackson Hole.”
PAUL NOLTE, PORTFOLIO MANAGER AT KINGSVIEW ASSET MANAGEMENT IN CHICAGO:
"There wasn't much of a surprise other than that they heightened trade as a risk to the economy and they felt pretty confident inflation will remain low and wage growth will pick up."
"They felt pretty confident they're going to raise rates next month which is not much of a surprise. We're a seeing a bit of a reaction and not much at this point."
"I wouldn't read a lot into the initial reaction because it’s pretty minimal."
"We saw the dollar fall off this morning. It rallied after the open. It’s part of the decline we've seen over the last few days related to the turmoil we've seen in Washington."
JUAN PEREZ, SENIOR CURRENCY TRADER, TEMPUS, INC., WASHINGTON:
"Apparently this is being taken as a dollar-negative even when the buck has managed to gain as a safe-haven. The notes are a mixed bag between good observations in regards to the consistency of economic indicators such as labor, GDP, and even inflation, but the geopolitical issues started to find their way into the written thoughts of officials."
JEFF KRAVETZ, REGIONAL INVESTMENT STRATEGIST, U.S. BANK PRIVATE WEALTH MANAGEMENT, PHOENIX:
"It looks like they are very confident the economy is strong enough and inflation is at the right speed limit to raise rates in September, but they did leave the door open on December. They cited trade as being one of the economic factors they are really looking at, which is a bit unpredictable right now. Trade is becoming a bigger issue with companies and confidence as far as spending. If you don’t know what the trade rules are it is tough to expand so that is what they are really focused on, if that data flows through. It may impact their ability, or their willingness, to raise rates in December."
MARKET REACTION:
STOCKS: S&P 500 little changed after initially ticking a couple of points higher; down 0.06 pct on the session
BONDS: U.S. Treasury yields hold steady; 2s
FOREX: The U.S. dollar back to little changed after initially weakening modestly against the euro
