March Minutes Preview: Balance Sheet Runoff In Focus (1/2)

With most Fed officials having already weighed in on their rate cut views since mid-March, the market's main focus for the minutes of the March 19-20 FOMC meeting (released 1400ET/1900BST) will be the Committee's discussion on slowing the pace of balance sheet runoff.

• As far as the rate discussion is concerned, it's likely to be even more stale than usual given the strong jobs/inflation data in the last 3 weeks and the increasing prospect that the first reduction will not happen until H2.
• On balance sheet policy, Chair Powell noted at the March press conference that the Committee "discussed issues related to slowing the pace of decline in our securities holdings. While we did not make any decisions today on this, the general sense of the committee is that it will be appropriate to slow the pace of runoff fairly soon".
• His emphasis on "fairly soon" led many market participants to pencil in May's meeting for the release of a preliminary plan to taper QT, and the upcoming minutes are expected to include the most recent thinking on that subject -potentially including a rough timeline.
• Other topics to watch include the degree of consensus around starting rate cuts this year, the newfound emphasis on "unexpected weakening in the labor market" as a catalyst for easing, and any discussion around the longer run rate median in the "Dot Plot".
• On the latter, it will be interesting if there is any further color on how the Committee views the restrictiveness of the current configuration of monetary policy, and somewhat related, how they see financial conditions (Powell and others have shown little concern over potential easing on this front).