No, Those Fed Minutes Were Not Hawkish

Following the release of the latest Fed Minutes, I was exceedingly amused to watch as seemingly every commentator one cared to (virtually) consult tried to put a hawkish spin on things.

market's reaction to minutes does not match the narrative I'm hearing from commentators

— Walter White (@heisenbergrpt) February 22, 2017

That is of course consistent with what Bloomberg’s Richard Breslow described overnight as a “hawkish retelling” of an otherwise dovish statement (he was describing how the market has leaned since the last Fed meeting).

It’s also highly absurd considering these would be the same commentators that just a few weeks ago, essentially demanded that the committee take March off the table in light of the weaker than expected read on average hourly earnings from the January jobs report.

“Nevertheless, they persisted” (shout out to Liz Warren).

But the market didn’t agree.

“The dollar fell to a fresh low for the session after the minutes of the most recent FOMC meeting showed members were concerned about the appreciation of the greenback,” Bloomberg wrote, adding that “March Fed hike odds dropped, Treasuries reversed losses, 10Y futures rose by ~8 ticks [and] 5s30s initially flattened to 110.1bp session low as minutes failed to mention details on potential Fed asset sales.” 

As I wrote:

It’s been something of a roller coaster day for rates and (even if the range has been tight).

At 10:38 EST, we got the latest news out of France which suggests that an alliance between centrist François Bayrou and Emmanuel Macron may serve to lessen Marine Le Pen’s chances of ascending to the French Presidency. That promptly led to selling in safe havens as German yields popped along with 10Y Treasury yields, then at 1:00 we got a lackluster, tailing 5Y auction that sent rates and USDJPY a bit higher still, and now it looks like the headline-scanning algos are feeling a bit dovish about the Fed minutes.

Fast forward a few hours and we got this assessment from Bloomberg:

• Yields were lower by about 2 basis point at 4:46 p.m. in New York. They had risen to session highs following tepid demand for a monthly auction of five-year notes. The minutes said many participants shared the view that a rate increase might be appropriate “fairly soon,” yet saw “only a modest risk” of inflation. The account of the last gathering deferred discussion
• The minutes were “not hawkish enough to change the market’s opinion on the chances that this Fed acts aggressively and goes in March or May,” said Tom Roth, head of Treasury trading at MUFG Securities
• Lowest yield levels of the session were recorded in early U.S. trading as German 10Y traded at lowest levels since Jan. 5 , while U.K. 10-year yields traded at the lowest level since Nov. 9 amid dimming outlook for consumer spending
• Treasuries followed European bonds lower after centrist rivals in France’s presidential election agreed on an alliance that erodes the odds of a victory by anti-euro nationalist Marine Le Pen

Right. So exactly what I said minutes after the Minutes (heh) hit the wires.

Consider all of that as you read Goldman’s take out after the close.

Via Goldman

Minutes from the January FOMC meeting noted that “many” FOMC participants anticipated a hike “fairly soon” if inflation and labor market data are in line with expectations and “a few participants” saw an advantage to hiking “at an upcoming meeting.” Overall, we do not view the minutes as sending a strong signal about the March meeting and have therefore made no changes to our subjective probabilities of the timing of the next hike. We continue to see a 30% chance that the next hike will come in March, a 20% chance for May, and a 40% chance for June.

Sorry, but…