The Minutes from the recent Fed meeting were largely a non-event. The Committee stated “Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time.”
The Minutes further stated “a number of officials said that an insufficiently restrictive policy stance could stall recent progress in moderating inflation pressures,” suggesting they are prepared to move rates up further than their December forecast of 5.1%.
Perhaps also of significance is the statement “Participants generally noted that upside risks to the inflation outlook remained a key factor shaping policy outlook., and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2% is appropriate from a risk management perspective.”
Writing it differently, the Committee indicated that it was more concerned about the risk of inflation remaining elevated rather than the economy slowing down or entering a recession.
As noted many times, the Fed has been adamant about the direction and scope of monetary policy. Any change from the current path would perhaps cause great damage to the Fed’s credibility. To think the Fed would pivot in the intermediacy could be viewed as only wishful thinking for this is not the path the Fed has been projecting.
Equites ended nominally lower on the day as the Minutes collaborated the idea that nothing will prevent officials from keeping rates higher for longer should economic resilience pose a threat to their goals.
The swaps market was largely unchanged following the release of the Minutes…rates will peak around 5.36%, up from the current range of 4.5% and 4.75%.
What will happen today? Revised GDP and GDP Price Index is released today. Will the core PCE be revised significantly?
Last night the foreign markets were down. London was down 0.37%, Paris up 0.30% and Frankfurt up 0.42%. China was down 0.11%, Japan down 1.34% and Hang Seng down 0.35%.
Futures are up about 0.25% as the market is growing confident the Federal Reserve’s peak rate would be within levels already by the markets. The 10-year is off 6/32 to yield 3.94%.
