Fed Minutes Were Hawkish While The Economy Is Starting To Roll Over

Fed Minutes are out and there are a bunch of hawkish headlines which really shouldn’t be that surprising given I have continued to suggest that Powell doesn’t speak for the entirety of the committee when he gets up there. 

Given that I think he needs to have unanimous consent of voters before kicking off a rate cutting cycle, unless we get big labor market slowdown, this ain’t coming any time soon and the minutes confirm that reality. We keep moving down the path toward no rate cuts this year. The median dot for the June SEP is likely going to be at 1 with several members at 0 cuts I suspect. 

This is not going to be good for risk assets. 

Here are some highlights from the minutes:

Lack of further progress on inflation getting to 2%. Significant increases in both goods and services price inflation. Inflation for core services ex housing moved up in 1Q vs 4Q23 and prices of core goods posted first 3m gain in several months. Housing services inflation slowing less than anticipated….Recent data had not increased their confidence in progress toward 2% inflation and suggesting now that the disinflation process would likely take longer than previously thought. 

*FED: ‘VARIOUS’ PARTICIPANTS WILLING TO TIGHTEN MORE IF NEEDED *FED MINUTES: ‘MANY’ UNCERTAIN ABOUT DEGREE OF RESTRICTIVNESS 

Although monetary policy was seen as restrictive, many participants commented on their uncertainty about the degree of restrictiveness. These participants saw this uncertainty as coming from the possibility that high interest rates may be having smaller effects than in the past, that longer-run equilibrium interest rates may be higher than previously thought, or that the level of potential output may be lower than estimated. 

*FED: ‘A NUMBER’ NOTED RISK FINANCIAL CONDITIONS WERE TOO EASY