Minutes of the meeting, which were released on Wednesday, show policymakers still focused on controlling the pace of rising prices and worried about any “misperceptions” in financial markets that their commitment to fight against inflation is weakening in some way. But officials also acknowledged that they had made “significant progress” over the past year. As a result, the central bank must now strike a balance between its fight against rising prices and the risks of slowing the economy too much.
Policymakers approved a half-percentage-point rate hike at last month’s meeting, a step back from the three-quarters of a percentage point hikes used for much of 2022. BACKGROUND:
MARKET REACTION:
STOCKS: The S&P 500 pared its gain and was up 0.38%. BONDS: The yield on the US 10-year Treasury rose and was up 3.707%, still lower at the end of the day on Tuesday. The yield on the 2-year note rose to 4.382%, slightly more than the previous day. FOREX: The Dollar Index fell 0.24%.
COMMENTS:
BRIAN DAINGERFIELD, RESPONSABLE DE LA STRATGIE FX G10, NATWEST MARKETS, STAMFORD, CONNECTICUT
“The reaction of the dollar was modest today after the release of the minutes. I think the essential tone of the minutes was something that reflected very well at the time in the December meeting. You think the Fed meeting in December – we got a new ‘dot plot’, which showed a drift up from the median dot expectation for 2023, for example there was a slowdown in pace, but there was a clear focus on data dependent, moving meeting by meeting And that kind of hawkish undertone that comes with this change in the dot plot, I think was well reflected in the press conference and the forecast and the statement at the time. and minutes, I don’t think he has any significant new information outside of this post.”
“If anything, the December message was reinforced by the minutes. There really wasn’t any major discussion about what the Fed might consider doing at its next meeting. had any clear indication, I would say, that the Fed is leaning toward a deeper slowdown or maintaining that new base of 50 basis point moves it made in December. I think that’s the main reason which we didn’t see a big reaction to, because the message of the minutes is very consistent with all the information we received in December and there really wasn’t much to give a big clue about what could be the committee’s next action at its meeting in early February.”
MIKE LOEWENGART, HEAD OF MODEL PORTFOLIO CONSTRUCTION, MORGAN STANLEY GLOBAL INVESTMENT OFFICE, NEW YORK
“The Fed minutes are a good reminder for investors to expect rates to remain elevated through 2023. Amid a still strong labor market, it makes sense that the fight against the inflation remains the name of the game for the Fed. We’ll get our first glimpse of the strength of hiring this week and whether the labor market can continue to withstand higher rates. The bottom line is that while we have changed schedule, the headwinds of last year’s market remain.”
CHUCK CARLSON, GENERAL MANAGER, HORIZON INVESTMENT SERVICES, HAMMOND, INDIANA
“(The Fed) always wants to be seen as an inflation hawk and that will be a recurring theme this year. People expecting a short-term pivot may be left cheated.”
“The reason the chances of a pivot in the first half are pretty slim is that the Fed is really focused on fighting wage inflation. And the only mechanism they have is rate hikes. That’s what they’re trying to fight.”
“The problem is that the mechanism is not perfect, because it could take some time. I expect the Fed to remain hawkish until they see wage inflation drop well below 5%. ”
“They’d like to see wage inflation in the 3-4% range on a consistent basis, and until then they’re going to be hawkish and keep pushing rates higher.”
CHRISTOPHER LANOUETTE, CHIEF EXECUTIVE AND FIXED INCOME MANAGER OF TAXABLE AND TAX-EXEMPT BOND PORTFOLIOS, CIBC PRIVATE WEALTH US, BOSTON
“Probably not a lot of new information compared to what we learned in the last meeting. It seems the challenge for Powell is to keep putting his foot on the monetary brake so to speak and to keep being hawkish and the minutes shows that in the committee’s concern, the signals the market is getting from the Fed, the market thinks the Fed is going to blink and the Fed is scrambling to say we’re getting inflation back to 2% and that there is going to be pain. It seems the market still hasn’t accepted that.”
“We’ve seen this going all the way back probably to June when the market seems to be getting ahead of itself with some data that may be a little better than expected on the inflation front and the Fed has to step in and get the market back and be a hawk and when you get the data that’s a little weaker Powell has to balance his comments He’s basically walking a tightrope in that he obviously doesn’t want to kill the economy but in the At the same time, they are well aware of the mistakes made by relaxing the fight against inflation too early, so he will continue to move forward, he has no real choice.We are 4.7% on the core PCE and their projection is 3.5% by the end of the year, that’s a pretty big move.”
JAKE DOLLARHIDE, GENERAL MANAGER, LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA
“It’s a scratched record every time the Fed hints at higher rates or confirms higher rates, the market sells. It’s like Pavlov’s dog. Higher rates mean ringing bells.”
“This market wants to go higher but it just needs some news at some point. Investors react to the past and ignore the present. Kashkari’s comments today were good news. He was dovish and he is typically hawkish.”