FOMC Minutes: No pre-determined path yet – UOB

Senior Economist at UOB Group Alvin Liew comments on the recent publication of the FOMC Minutes of the January event.

Key Takeaways

“The Jan FOMC minutes noted that most participants thought it was warranted the Federal Reserve should hike the Fed Funds Target Rate (FFTR) at a faster pace this time compared to 2015 due to the current conditions of stronger economic growth outlook, much higher inflation and tighter employment market.”

“But the minutes also showed that the Fed is not committed yet to any policy path/trajectory. Instead, the Fed ‘will be updating their assessments of the appropriate setting for the policy stance at each meeting’, implying every meeting will be ‘live’ and data dependent but it did not talk about a potentially bigger opening rate hike in Mar or that it will hike in every meeting this year. Even though the minutes highlighted the balance of inflation risks is on the upside, markets still viewed this latest minutes as less hawkish compared to the comments by FOMC Chair Powell during the press conference of the Jan FOMC two weeks ago.”

“However, it should be noted the FOMC minutes predated the elevated Jan CPI inflation spike and the recent Jan wage surge, and these data had heightened the risk of more aggressive and frequent Fed rate actions. As such, we still keep our expectations for the Fed to start the rate hike cycle with a 50bps rate hike in Mar FOMC, followed by clips of 25bps rate hikes for another 4 meetings in May, Jun, Sep and Dec FOMC bringing the FFTR to 1.50%-1.75% by end-2022.”