FOMC Minutes: Participants viewed policy rate as likely at or near its peak

Policy

• FOMC members generally viewed addition of the word 'any' to comments on possible additional firming as relaying their judgment that rates were likely at or near peak of cycle.


• A number of participants highlighted uncertainty around how long restrictive policy would need to be maintained.


• Those participants pointed to downside risks to the economy associated with an overly restrictive stance.


• A few participants suggested FOMC could face a trade-off between dual mandate goals in the period ahead.


• In projections almost all participants indicated their base-line implied a lower FFR would be appropriate by the end of 2024.


• Participants also noted, however, that their outlooks were associated with an unusually elevated degree of uncertainty and that it was possible that the economy could evolve in a manner that would make further increases in the target range appropriate.


• Several participants observed that circumstances might warrant keeping policy rate at current level longer than they currently anticipate.


• Participants generally reaffirmed it would be appropriate for policy to remain restrictive until inflation was 'clearly moving down sustainably'.


• Several participants remarked that the Committee's balance sheet plans indicated that it would slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level judged consistent with ample reserves. 


• These participants suggested that it would be appropriate for the Committee to begin to discuss the technical factors that would guide a decision to slow the pace of runoff well before such a decision was reached in order to provide appropriate advance notice to the public.

Economy

• Participants forecast upside risks to inflation as having diminished.


• "Several participants observed that the ongoing rebalancing of labor supply and demand would help reduce core services inflation".


• "Several participants assessed that housing services inflation would fall further over time as the earlier deceleration in rents on new leases continued to pass through to broader rent measures."


• "Several participants noted that longer-term inflation expectations remained well anchored and that near-term inflation expectations of households had declined recently."


• "As evidence for the softening of the growth of labor demand during 2023, many participants noted the decline in job openings, and a few remarked on the lower quits rate.


• Several participants noted the risk that, if labor demand were to weaken substantially further, the labor market could transition quickly from a gradual easing to a more abrupt downshift in conditions."


• Several participants noted the decline in use of overnight reverse Repo facility, forecast this reflecting portfolio shifts by money market funds.


• Staff economic outlook was 'broadly similar' to the projection prepared for previous meeting.

via Federal Reserve

Reaction details (19:09)

In an immediate reaction to the minutes...

• 10yr T-Note futures (H24) fell from 112-14+ to 112-09+ over three minutes.


• The Dollar Index rose from 102.55 to 102.73 before paring to 102.66.


• Equities saw marginal selling pressure.

However, 30 minutes later...

• The initial move was unwound (and more) with stocks and bonds drifting higher while the DXY slipped back beneath 102.50.

03 Jan 2024 - 19:00- Fixed IncomeImportant- Source: Fed