FOMC Minutes Could Reveal Hawkish Fed Details

This afternoon’s release of the Jan 31-Feb 1 FOMC meeting minutes will reveal if policymakers saw the need for additional interest rate increases of more than +25 bp increments and whether they anticipated raising rates higher than previously thought to tame persistently-high inflation.  At the meeting, policymakers voted unanimously to raise the federal funds target range by 25 bp to 4.50%-4.75%.

The Fed’s +25 bp rate hike at the Jan 31-Feb 1 FOMC meeting was a moderation from the +50 bp rate hike at the December meeting after four consecutive +75 bp rate hikes.  However, recent Fed comments have bolstered speculation that policymakers may consider a +50 bp rate hike at the next meeting.  Evercore ISI said today’s minutes ”will express the strategic rationale for raising rates by 25 bp.”

Last week, Cleveland Fed President Mester and St. Louis Fed President Bullard said they saw the case for another +50 bp rate hike at the last meeting.  Today, Bullard repeated his view that the economy's resilience shows the need for the Fed to keep raising interest rates and get monetary policy to a sufficiently restrictive level as soon as possible.  Today’s FOMC minutes should show whether other policymakers shared this view.  That said, Richmond Fed President Barkin last week pushed back on returning to bigger rate hikes when he said that +25 bp rate hikes give policymakers more flexibility.

At the December FOMC meeting, policymakers saw the federal funds rate rising to +5.1% by the end of this year, and holding there to bring inflation down to the Fed’s 2% target. However, the most recent U.S. employment and inflation news was stronger than expected, fueling speculation the Fed may need to extend its rate hike campaign for longer than previously expected.  As a result, federal funds futures have priced in +25 bp rate hikes for the next three FOMC meeings on March 21-22, May 2-3, and June 13-14. 

Today’s FOMC minutes could also reveal how policymakers interpreted the economic data they had on hand by the time of the meeting and clues as to how they may be interpreting the strong economic data that has been released since.  Fed Chair Powell said earlier this month that upcoming Fed projections, which will be released at the next FOMC meeting on March 21-22, will be determined by what happens with inflation.  If policymakers see the risks of doing too little to slow inflation as the greater risk when compared to raising too much, that could suggest that officials are prepared to take interest rates higher.

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