FOMC Minutes Prep

From Dove back to Hawk Post Trump's Victory

Likely not market moving, but entertaining in that the Fed went from Uber-dove right before the election to Hawkman reborn. There might be some mildly entertaining commentary or more evidence of tortured logic

FOMC Minutes Prep: The One Where Powell Flip-Flopped After Trump Won

By Newsquawk via ZH

PREVIEW

The December Fed meeting saw the Fed cut by 25bps as expected and signal a slowdown of easing ahead through changing the language in the statement and by lifting the 2025 dot plot to suggest just two rate cuts this year. Within the presser Fed Chair Powell said that it was a close call, albeit the right call, and we will look to the minutes to see the discussions among the FOMC for keeping rates on hold in December - Hammack was the sole voting dissenter, but the dot plot suggests there were at least four members who wanted to keep rates on hold. The minutes will also be used to gauge the prospects for easing ahead and what will be required, but several Fed speakers since have said the Fed can afford to be cautious with rate cuts due to sticky inflation and a resilient labor market. Powell also stated that policy is well positioned to deal with risks and uncertainties, noting if the economy remains strong and inflation does not continue to move sustainably toward 2%, they can dial back policy restraint more slowly. However, if the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, the Fed can ease more quickly.

Given the hawkish developments, the minutes are expected to maintain this tone but it will likely stress that the Fed will make decisions based on how the data unfolds. Discussions around the neutral rate, inflation persistence, growth and the labor market will be eyed, as well as potential impacts of upcoming government policy changes.

Analysts at Citi note the minutes will include discussion of concerns that inflation could remain persistently elevated if the policy rate does not remain restrictive enough, adding there could be some discussion of the idea that the neutral rate of interest has moved higher and policy rates are closer to neutral than previously thought. Note, the latest dot plot saw the longer run median dot shift up to 3.0% from 2.9%, with the range of views between 2.375-3.875%. It will also be interesting to see if there was much discussion about the impact of upcoming policy changes with Trump becoming President. Powell had highlighted that some incorporated policy changes into their projections, but others did not. Citi points out that the minutes will likely discuss upside risks to growth and inflation that some Fed officials are attributing to potential new government policy

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The desk writes that the "Minutes may specifically discuss tariffs as an upside risk to inflation, although we would expect at least “some” to see this as a one-time price level effect that would not necessarily imply tighter monetary policy." Elsewhere, Citi highlights that "most" will continue to characterize the labour market as "solid", although some will likely note that it is still "very gradually" softening. The desk notes there should also be some discussion of remaining vigilant regarding a sharper weakening in labor markets.

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