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Dec Minutes Preview (1/3): Feb Step-Down In Focus

FED
A few things to watch in the December FOMC minutes (released Wednesday at 1400ET - our full meeting review is here):
  • Expect the minutes to emphasize Powell's message that "we have more work to do", with participants putting greater focus on "how long do we remain restrictive", and "not so important how fast we go".
  • Markets interpreted Powell’s press conference comments mostly dovishly, especially on a possible 25bp hike in February vs Dec's 50bp. One area of focus in the minutes will be the degree to which participants anticipated a further step-down, and what inflation/job conditions would allow that to happen.
  • Recall at the meeting: the Dot Plot was more hawkish than most had expected in terms of the terminal rate (5.00-5.25% in 2023, with an upward skew in the distribution). The minutes could flesh out some of the participants' thinking on how long rates need to be held at a "sufficiently restrictive" level.
  • By the same token, of interest will be whether and to what degree the minutes push back against market pricing for rate cuts (Powell said they "weren't considering" cuts), and whether there was any concern about the ongoing easing of financial conditions via market expectations.
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