The minutes of the December FOMC meeting will be released at 2 PM ET on Wednesday, January 8. As BofAML notes, the minutes give a platform to those outside the voting majority on the FOMC to express their disagreements with the current policy stance. Typically, that has meant that the minutes sound more hawkish than the FOMC statement or speeches by the voters. Also remember that much of the discussion in the minutes is based on old news: the US economy has shown mostly stronger data since the December 18th FOMC decision to taper by $10 bn as of January 1.
On the economy, look for a modestly more optimistic outlook in the minutes, with balanced risks on growth and employment and at most slightly more concern about too-low inflation. We expect active discussion over the extent of cyclical vs structural factors in the labor market — the more time spent on structural concerns, the more hawkish the minutes will sound. A minority of Fed officials may emphasize the risks from persistently low inflation, but we expect the majority to cling to the belief that inflation should soon start to move up toward the Fed’s long-run 2% target.
On policy, the discussion around the pace of tapering is likely to be relatively vague with lots of “data dependence” caveats, but most of the FOMC should indicate support of a $10 bn per meeting reduction in the purchase pace — provided their forecasts are realized. Some significant minority is likely to call for scaling back QE3 at a quicker pace. This may appear in the discussion of the Summary of Economic Projections (SEP).
Also on policy, look for broad support for strengthening Fed communications and forward guidance in particular, but still a lack of agreement on specific approaches. We expect the FOMC to inch toward more qualitative than quantitative guidance. An IOER cut is likely to remain on the table (but not imminent), and additional discussion of the reverse repo facility is likely. These more dovish elements could well be overshadowed by the taper discussion.