Will the Powell Fed Rewrite the Playbook?

The minutes of the May FOMC indicated that there could be big changes Wednesday to longstanding and fundamental forward guidance. The FOMC may acknowledge for the first time that policy is now neutral, not accommodative. We would take that as dovish, because it means no more hikes are necessary unless improvements in inflation and R-star drive them. More mysterious is a possible change to the commitment to keep rates, for some time, below the longer-run neutral rate. The minutes' rationale for such a change is nonsensical, but it would be very hawkish if it means that the FOMC suddenly believes that the "new normal" is over thanks to a tax cut and a little defense spending. If only it were that easy.