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

A few sell-side takes on what to watch in the Dec FOMC minutes:

• BMO: "With Powell signalling an openness to bring rates even higher if needed, a further discussion on this topic within the Minutes and any greater clarity on the distribution of risk surrounding the hiking finish line certainly holds tradable potential. Additionally informative will be the consensus among policymakers on the size of future move, and the criteria for more 50 bp hikes or justification for future tightening to be of the quarter point variety. At this stage, given the progress made on the inflation front we suspect the bar for additional 75 bp moves is prohibitively high...a larger discussion on the risk of overtightening or more worry on the demand destruction that will follow from the Fed’s actions would disproportionately benefit the belly of the curve and exacerbate the richening in intermediate Treasuries."
• Scotia: "Key may be any further discussion around why members continue to view the risks to inflation as pointed to the upside. Discussion around whether they feel a stronger need to lean against what had been easing financial conditions into the meeting may further reveal the motives to sounding more hawkish at this meeting. Third may be any discussion around the risk that future estimates of the terminal rate may have to keep marching higher."
• Wrightson ICAP: "don’t expect much substantive discussion of the Fed balance sheet outlook in the minutes of the December FOMC meeting that will be released this week, but that should change at the next meeting."
• TD: Minutes to "shed additional light on Fed officials' policy views for 2023. Note that at the meeting the Committee signalled broad expectations for a substantially higher terminal rate ... despite also implementing a downshift in the pace of rate increases to 50bp.