Since the last FOMC meeting on June 14th - when The Fed 'paused' its hiking cycle (but pressed its view, via The Dots, that the cycle has at least 2 more hikes in it) - gold and bond (prices) are down 1-2% with the dollar basically flat. Stocks have rallied notably, but crypto has been the big winner...
Which is 'odd' given that the market's expectations for Fed actions has shifted significantly more hawkish - despite the 'pause'.
Another view of that is the upward shift in the Fed Funds curve expectations since the last FOMC meeting...
So ahead of The Minutes, all eyes are on any confirmation of the 'majority' confirming their more hawkish view going forward, despite the decision to pause In June. The market is pricing in a July hike as almost a done-deal - will The Minutes reinforce that?
As a reminder, Powell reinforced The Fed's hawkish position on June 29th, emphasizing the importance of maintaining a patient and data-dependent approach to monetary policy, indicating that any changes will be based on a thorough assessment of economic conditions.
Fedspeak since the announcement has focused on dissuading the market from assuming the Fed ‘paused’ in favor of the ‘skipped’ narrative. Many are anticipating a similar takeaway from the minutes.
What The Minutes Said...
On division despite unanimous 'pause':
"In consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation, almost all participants judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5 to 5-1/4 percent at this meeting."
"Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.”
On future hikes, "almost all" agreed more to come:
"In discussing the policy outlook, all participants continued to anticipate that, with inflation still well above the Committee's 2 percent goal and the labor market remaining very tight, maintaining a restrictive stance for monetary policy would be appropriate to achieve the Committee's objectives.
Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.
On inflation remaining unanchored:
"Participants also discussed several risk-management considerations that could bear on future policy decisions. Almost all participants stated that, with inflation still well above the Committee's longer-run goal and the labor market remaining tight, upside risks to the inflation outlook or the possibility that persistently high inflation might cause inflation expectations to become unanchored remained key factors shaping the policy outlook.
So, in summary, the hawks on the FOMC wanted to raise rates in June, but agreed to a pause with the understanding that the Fed was committed to raising rates later in the year. Almost all of the FOMC wants to tighten further.
This reinforces the idea that a hike in July should be seen as very likely, absent some real big surprises in the upcoming data.
Additionally, policymakers discussed the possibility of upward pressure on money-market rates from issuance of vast amounts of Treasury bills following the end of the debt-limit standoff.
Those participants observed that upward pressure on money market rates relative to the rate offered on the ON RRP facility could lead to a decline in usage of the facility... and they're right...
Roberto Perli, manager of the System Open Market Account at the New York Fed, said staff assessed that replenishment of the Treasury General Account and ongoing balance sheet runoff “were likely to subtract from reserves more than the decline in ON RRP participation would add to them.”
Some remain anxious about credit-tightening from residual risk in the banking system:
"Despite the receding of the stresses in the banking sector, some participants commented that it would be important to monitor whether developments in the banking sector lead to further tightening of credit conditions and weigh on economic activity."
Finally, Fed staff economists continued to forecast a “mild recession” starting later this year,
“Real GDP was projected to decelerate in the current quarter and the next one before declining modestly in both the fourth quarter of this year and first quarter of next year.”
This is at odds with Chair Jerome Powell’s expectation for slow growth.
"Recession" word count in Fed minutes:
Feb 1: 4
Mar 22: 3
May 3: 2
Jun 14: 3
Real the full Minutes below...