Let’s Take a Few (Fed) Minutes

February 22, 2024

The Federal Open Market Committee released the minutes from their latest meeting this week. As with all meetings, these recorded details of the actual conservations given market participants a bit more color regarding what the interest-rate setting body is thinking.

These minutes covered the proceedings from January 30-31, 2024. There were a few interesting takeaways to note:

1.) A top is in – The minutes stated that “participants judged that the policy rate was likely at its peak for this tightening cycle.” This sentiment appears consistent with the market’s general belief that no further rate hikes will be needed for this cycle (even after January’s higher than anticipated inflation reports)

2.) To cut or not to cut – The decision to not hike anymore seemed rather unanimous. However, the discussion around when (or if) to lower rates was more varied – and not in line with the market’s anticipations at the start of 2024. The minutes read “participants generally noted 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.”

3.) Inflation is top of mind – as noted in the quote above, the path of inflation remains the north-star for the FOMC. While the dual mandate covers both price stability and employment, the former is really the focus (in large part due to the ongoing stability and strength in labor at this time). With the hotter than anticipated inflation prints last month, it is clear the FOMC will be reacting and watching carefully before rates are lowered. Inflation is driving the decision. The economy doesn’t need to weaken materially before rates will be lowered but they do need confidence that inflation is on a glide path to 2% target

4.) Beyond rates – the minutes also discussed the FOMC’s other tool (besides lowering/raising rates) – namely open market purchases (or sales) of fixed income securities. The FOMC has been engaged in quantitative tightening, ie: selling securities/reducing its holdings. The minutes show that the governing body is considering slowing that down, which would also result in an easing of monetary policy (in the same way a rate cut would) but also noted that the two decisions (rate and balance sheet actions) won’t be linked

Overall, there were no real surprises in the minutes and the comments shared by Jerome Powell in his last press conference were very much in line with these written records when he stressed that progress was being made on inflation but it wasn’t quite time to back off via rate cuts.

This process sort of reminds me of road trips as a child when I would ask the famous question “are we there yet?”. The answer…”No, but we’re getting closer every minute….so just be patient”

Onward we go,

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