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Minutes of the Federal Open Market Committee, January 27-28, 2015

[snipped from the full text] “Staff Review of the Financial Situation – Over the intermeeting period, amid trading that was volatile at times, longer-term sovereign yields in the United States and other advanced economies declined. These moves were attributed in part to a deterioration in market sentiment associated with downward pressure on inflation, increased concern about the global economic outlook, and announced and anticipated foreign central bank policies. Moreover, continued sharp declines in oil prices and U.S. economic data releases that were viewed by investors as a bit weaker than anticipated, on balance, reportedly weighed on sentiment. Federal Reserve communications over the intermeeting period were apparently seen as about in line with expectations on balance. However, reflecting in part the deterioration in market sentiment, the expected path for the federal funds rate implied by market quotes shifted down. Results from the Desk’s January Survey of Primary Dealers indicated that dealers continued to put the highest probability on scenarios in which the FOMC chooses to commence policy firming around the middle of the year, although the average probability assigned to a commencement after June increased somewhat. Yields on nominal Treasury securities continued to move lower over the intermeeting period, with market expectations of the policy rate path being revised downward, and with term premiums declining, in part reflecting actual and expected policy easing abroad. On balance, the Treasury yield curve flattened over the intermeeting period, while interest rate volatility increased somewhat. Although the measure of inflation compensation over the next 5 years based on Treasury Inflation-Protected Securities (TIPS) increased, inflation compensation 5 to 10 years ahead declined further to its lowest level in a decade. Yields on 5- and 10-year TIPS moved lower over the period. Over the intermeeting period, U.S. equity markets were volatile. Option-implied volatility for the S&P 500 index declined, on balance, but remained in the upper half of the range seen over the past year. Broad U.S. equity price indexes moved higher, while stock prices for large domestic banking organizations moved lower on net. Corporate bond spreads were also volatile over the intermeeting period but were little changed, on net, for investment-grade issuers and ended the period lower for speculative-grade issuers, particularly energy companies….”


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