FOMC Minutes: What are the Main Takes

The minutes of the February 1 FOMC meeting were largely expected, but with some hawkish edits added to reflect recent strong activity and inflation data. The majority supported a slowing pace of rate hikes by 25bp, but a few advocated for a larger 50bp hike, which had already been mentioned by Bullard and Mester. Some comments were made about looser financial conditions requiring tighter monetary policy, which were more hawkish than Chair Powell's statements at the February 1 press conference. There was no discussion about the possibility of a pause in rate hikes, indicating that ongoing hikes will be necessary, in line with current market pricing and the views of all participants.

The February 1 FOMC meeting minutes were in line with expectations, reflecting a modestly hawkish tone. However, they did not contain any significant new information beyond what had already been communicated by Fed officials in recent weeks. Despite the potential for the minutes to sound outdated, given that they were based on data prior to the release of impressive economic figures such as 517k payrolls, 0.4% core CPI, 55.2 ISM Services, and 3.0% retail sales, the edits made after the meeting helped emphasize certain discussions. Although some of these edits and details leaned towards a more hawkish view, it is understandable given the stronger economic activity and inflation data released since the meeting.

The mention of financial conditions in the initial part of the minutes closely mirrored Chair Powell's comments at the press conference. The loosening of financial conditions was acknowledged, but they were still not as loose as they were at the beginning of 2022. This loosening of financial conditions could be a result of expectations of declining inflation, which was the original intent of tightening financial conditions. Taken alone, this discussion on financial conditions could be considered somewhat dovish. However, a later comment on the outlook for monetary policy and financial conditions tilted more towards a hawkish stance.

Several participants observed that financial conditions had relaxed in the past few months, which led them to suggest a tighter stance on monetary policy.

To me this would suggest a currently less benign view of financial conditions among Fed officials than three weeks ago.

The FOMC meeting minutes also included some noteworthy discussions or rather, the absence of it, regarding the outlook for monetary policy. During the FOMC press conference, Chair Powell was asked about the discussion around the conditions for a pause in rate hikes, and he referred to the meeting minutes for more information. While this could simply mean that the minutes are the appropriate avenue for discussing specific intra-meeting conversations, it is significant that there was no discussion on a possible pause in rate hikes in these minutes. This could be due to hawkish editing of the minutes after the meeting, as an explicit discussion of a pause would have been highly dovish in the current context and would suggest that the Fed's views differ from the current market pricing, which is likely not the case.

Overall, given a rapidly changing economic and market backdrop since the February 1 meeting, it is likely that edits made to otherwise stale minutes were intended to reaffirm the Fed’s commitment to lower inflation and thus higher rates. I continue to expect three more 25bp hikes in March, May, and June with policy rates reaching 5.25-5.50% and risks tilted towards hikes continuing into H2.

Please have a look at this video where Nathan Bray and I explained more in depth what is happening on FOMC Minutes:

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