Rate Cut Discussion Characterization In Focus For Minutes (1/3)

The limited post-December FOMC participant commentary has pointed to an attempt to clarify Chair Powell’s seemingly dovish press conference remarks and tone on future rate cuts. That will be the main focus of Wednesday’s release of the minutes from that meeting (1400ET).

• The key moment of Powell’s press conference was his acknowledgment that the Committee discussed future rate cuts at the meeting: "the question of when it will become appropriate to begin dialling back the amount of restraint in place...begins to come into view and is clearly a topic of discussion out in the world, and also a discussion for us at our meeting.” (Our review of the December FOMC is here (PDF).)
• The first post-meeting pushback against the market’s significantly dovish take on Powell’s rate cut comments came from NY Fed Pres Williams who said re cuts that it was "not the topic of discussion around what we are going to do" - rather he said the FOMC went around the table and said what their Dot Plot forecasts were, which of course included 2024 cuts. This was not far removed from what Powell said when asked to provide some color as to the nature of the discussion.
• Therefore the characterization will be under the most scrutiny in today’s release. Given what we’ve heard from multiple FOMC participants since the meeting, it’s likely the rate cut discussion will be portrayed as terse and conducted in conjunction with the new economic projections – in other words, conditional and data-dependent. And the prospect of cuts would probably be portrayed as an attempt to keep policy from getting too restrictive in real terms as inflation falls.
• Other aspects of the press conference will be under scrutiny in the minutes. Powell didn't really push back against easing financial conditions, noting that market pricing has been a "back-and-forth", depending on different views on the economic outlook. When asked how the Fed would ensure it's not behind the curve on easing, he went fairly far in entertaining the possibility, noting that the risks of over-tightening and under-tightening were now better balanced: "we're aware of the risk we would hang on too long - we're very focused on not making that mistake.”