FOMC Jan Minutes Preview: Reaffirming Caution And Patience (1/3)

The immediate focus in the January FOMC meeting minutes (out at 1400ET/ 1900GMT) will be on participants' thinking surrounding the prospect for future rate cuts - both timing and magnitude. Excerpts from our full preview (which is in PDF here):

• Recall that the January FOMC meeting marked the end to the Statement's tightening bias, but the headlines and market reaction centered on Chair Powell's pushback against the likelihood of a rate cut at the next meeting in March ("based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March at as the time to do that, but that is to be seen.") Our review of the January FOMC is here (PDF).
• Participants’ comments since the January meeting have affirmed that sentiment, with no members showing appetite for a March cut.
• The Minutes will probably reflect that the incoming data have not been entirely consistent with Powell’s “greater confidence” criteria on initiating rate cuts (“we’re looking for greater confidence that inflation is moving sustainably down to 2 percent”). Indeed, the data since January have on balance also pushed back on near-term cut expectations, including employment (nonfarm payrolls surprising to the upside) and inflation (CPI and PPI pointing to a potential reacceleration in the Fed’s preferred core PCE price gauge). At this point there are virtually no sell-side analysts still eyeing the first cut in March, with the baseline view shifting to May/June in both analysts’ eyes and futures market pricing.
• The limited FOMC commentary we have seen since the Feb 12 CPI release suggests that while it certainly didn’t bolster the case for early cuts, it likewise didn’t shake the generally-held view that inflation was converging to target.
• Of note will be whether the Minutes therefore affirm Powell’s nod to the December Dot Plot, which implied 3x 25bp cuts in 2024, as providing a reasonable guide to the Committee’s current thinking. While cuts are likely still on the table if inflation roughly aligns with trend in the coming months, the downside rate risk is likely to be limited absent concomitant downside surprises in the inflation data. In other words, we would not be surprised to see the Committee’s discussed approach as being “cautious” and/or “patient”.