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Fed Minutes Tip Support For Modifying Hike Commitment, Presage Imminent IOER Tweak

Just in case traders needed a bit more to ponder...

It’s probably safe to say that most of the Fed drama played out on Wednesday when Jerome Powell ignited a furious rally with his “just below neutral” walk back of the now infamous “long way from neutral” October misstep, but just in case traders needed a bit more to ponder, we of course got the November Fed minutes on Thursday.

Coming in, expectations were that the minutes would continue to suggest that the committee is pleased with how the economy is performing and should also paint a picture of a Fed that still harbors quite a bit of conviction in terms of the relative wisdom of further gradual hikes.

“The minutes to the November FOMC meeting should show a confident Fed that is comfortable gradually raising rates given their expectations for above trend growth and steady inflation over the next several quarters, but the focus will likely be on the discussion around the balance of risks to the outlook”, BofAML wrote last week, on the way to noting the obvious, which is that “markets will be watching closely how much emphasis the Committee puts on the downside risks from the slowing global economy, softening housing market and fading fiscal stimulus.”

In the minutes, “almost all” officials said another hike was needed “fairly soon”, but there’s some potentially notable nuance.

For one thing, the committee discussed modifying the language on “further gradual” hikes and chatted about the necessity of taking a “flexible” approach to policy. Many officials stressed the need to adopt a “more data-dependent focus” in the statement.

All of that – especially the bit about modifying the statement language presumably as they get closer to neutral – skews dovish from where I’m sitting.

The minutes also echo (although I guess “echo” isn’t the right word, considering this happened prior to yesterday’s remarks) Powell’s comments about policy not being pre-set and about the need to weigh the upsides and downsides. Risk factors discussed included corporate debt, low inflation expectations and, of course, trade.

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As noted here over the weekend, folks were also watching for any technical discussion on the IOER issue, something many market participants pretty clearly think the Fed needs to address in more detail in light of the ongoing EFFR drift.



Not only did that come up, but officials actually discussed an IOER change coming possibly before the December meeting. Presumably as part of the same discussion, officials also chatted about the need for abundant reserves, an apparent reference to the necessity of tweaking policy in 2019 out of respect for those concerns.

You can parse this to your heart’s content below.

Full minutes


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