But that's just the start as expectations for rate-cut expectations (and timing) have collapsed in the three weeks since The Fed met...
From three cuts fully priced-in, the market is now pricing in one, with a 50% chance of second....
Source: Bloomberg
And June is off the table entirely for a cut (with May FF options even hinting at the chance of a rate-hike)...
Source: Bloomberg
The market is now significantly more hawkish than The Fed's dots from just three weeks ago suggested...
Source: Bloomberg
So, given how stale these Minutes are - what exactly is it that The Fed wants us to know from them?
The highlights:
On inflation goals:
Participants generally judged that risks to the achievement of the Committee's employment and inflation goals were moving into better balance (NOT ANYMORE)
Consumer price inflation continued to decline, but recent progress was uneven. (NOT ANYMORE)
Some participants pointed out that the recent increases in inflation had been relatively widespread, indicating that they should not be dismissed as “merely statistical aberrations.”
On delaying the start of cuts:
...all 19 Fed officials generally agreed that high inflation readings in January and February “had not increased their confidence” that inflation was falling steadily to their 2% target.
On the inevitability of cuts:
"In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle, and almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected.
In support of this view, they noted that the disinflation process was continuing along a path that was generally expected to be somewhat uneven.
They also pointed to the Committee's policy actions together with the ongoing improvements in supply conditions as factors working to move supply and demand into better balance.
Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent"
On the economic outlook:
Some participants pointed to geopolitical risks that might cause more severe supply bottlenecks.
Some participants noted concern that financial conditions might not be as restrictive as desired, which could put upward pressure on inflation.
Most participants noted that, during the past year, labor supply had been boosted by increased labor force participation as well as by immigration.
Participants further commented that recent estimates of greater immigration in the past few years and an overall increase in labor supply could help explain the strength in employment gains even as the unemployment rate had remained roughly flat and wage pressures had eased.
On tapering QT 'fairly soon':
Although most officials saw the process as proceeding smoothly, they “broadly assessed” it would be appropriate to take a cautious approach to further runoff given market turmoil in 2019, the last time the Fed tried to shrink its portfolio.
“The vast majority of participants thus judged it would be prudent to begin slowing the pace of runoff fairly soon,” the minutes showed.
Tapering QT will be in TSYs, not MBS:
In their discussions regarding how to adjust the pace of runoff, participants generally favored reducing the monthly pace of runoff by roughly half from the recent overall pace.
With redemptions of agency debt and agency mortgage-backed securities (MBS) expected to continue to run well below the current monthly cap, participants saw little need to adjust this cap, which also would be consistent with the Committee’s intention to hold primarily Treasury securities in the longer run.
Accordingly, participants generally preferred to maintain the existing cap on agency MBS and adjust the redemption cap on U.S. Treasury securities to slow the pace of balance sheet runoff.
This was most notable:
FOMC says "majority of survey participants now expecting the [tapering of QT] to start around midyear."
But, The Fed previously has said it won't start tapering QT without cutting rates before/at same time.
Finally, this was very interesting!!!
President Biden chimed in on Fed policy...
“Well, I do stand by my prediction that, before the year is out, there’ll be a rate cut,” Biden said Wednesday at a White House press conference alongside Japanese Prime Minister Fumio Kishida, adding that today's CPI report could delay a rate cut by at least a month...
So much for 'Fed independence' that Powell was spouting on about in his speech last week.
The Fed has been assigned two goals for monetary policy - maximum employment and stable prices.
Our success in delivering on these goals matters a great deal to all Americans. To support our pursuit of those goals, Congress granted the Fed a substantial degree of independence in our conduct of monetary policy. Fed policymakers serve long terms that are not synchronized with election cycles.
Our decisions are not subject to reversal by other parts of the government, other than through legislation.
This independence both enables and requires us to make our monetary policy decisions without consideration of short-term political matters.
Such independence for a federal agency is and should be rare. In the case of the Fed, independence is essential to our ability to serve the public.
Just a reminder...
And finally...
“One of Chair Powell’s responsibilities is to protect the public standing of the Fed,” said Vincent Reinhart, chief economist at Dreyfus and Mellon.
“The closer the FOMC acts to the election, the more likely it is that the public will question the Fed’s intent.”
Read the full FOMC Minutes below:
