Just A Minute(s)

The Federal Open Market Committee (FOMC) released the meeting minutes from its January 31 to February 1 meeting, where it raised rates by 25 bps. And while previous minutes had shown most members were on the same page about the policy path, there was some contention in this meeting. ⚔️

Most members stressed that inflation remains well above the long-term 2% target and that ongoing rate increases would be necessary. The ultimate question(s) remains how high do rates need to go to be restrictive, how long will they have to stay there, and what path will the Fed take to get there?

The meeting minutes indicated that “a few” members believed a 50 bp rate hike was appropriate at the last meeting. They pointed to a historically tight labor market applying upward pressure on wages and prices. Generally, they’re happy with the recent progress but require substantially more evidence of progress is necessary. Specifically, progress across a broader range of prices is what they’re looking for. 📉

So far, inflation’s path is clearly downward, but it remains volatile each month. And with that volatility comes the risk that inflation re-accelerates and catches the Fed on the wrong foot again.

With that said, now that the Fed has shifted gears from 50 bp to 25 bp hikes, there was little to no indication they’d ramp back up again.

In the meantime, we’ve already discussed that the market has adjusted its expectations over the last two months. For example, bonds went from pricing in a rate cut later in the year to a higher terminal rate with no cuts until 2024. Additionally, members of the Fed like James Bullard are still towing a hawkish line in the media, hoping to keep the market from getting ahead of itself again. 🦅

The next FOMC meeting and rate decision are on March 21 to 22. So we’ll have to wait and see how the economic data pans out until then. 👀

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