The December FOMC minutes were hawkish. Sort of. Maybe. At the margins.

That’s probably how the market will read them, and the media spin will likely lean that way too.

Although officials acknowledged the new dot plot suggests rate cuts by the end of 2024, there was little in the way of evidence to suggest anyone’s in a hurry.

In fact, there were allusions to the possibility of additional rate hikes, even as upside risks to inflation have diminished, according to officials.

Whatever the case, policy will need to remain restrictive for some time. Several participants thought rates might stay at terminal for longer than anticipated.

Markets were focused on any additional color regarding the Fed’s assessment of financial conditions. Much as it pains me to recapitulate for the nth time, I have little choice.

In early October, shortly after the hawkish September FOMC meeting, Fed officials began to convey that the tightening in financial conditions witnessed since late-July, and particularly the increase in the term premium, might stand in for the final rate hike tipped by the September dot plot. In the November policy statement, the Fed added a reference to financial conditions, effectively confirming that the July hike was the final increase of the cycle.

In his November post-meeting press conference, Jerome Powell conceded that the September dot plot was stale, further confirming that terminal was reached over the summer. But, he also cautioned that in order for any tightening in financial conditions to be relevant for monetary policy, the impulse would need to be persistent. It wasn’t. Persistent, I mean. In fact, it was the opposite of persistent. It was transitory. (Sorry.)

Financial conditions eased dramatically, and by the end of November, the term premium was negative again, as the macro data came in soft and Chris Waller explicitly introduced rate cuts into the discussion. Stocks soared.

At his December press conference, Powell again “failed” to push back on the market, and the dot plot refresh tipped an additional rate cut for 2024 (75bps versus 50bps in the September vintage).

Give the market 75, it’ll take 150, and that’s pretty much where things ended 2023 — with the Fed telegraphing three rate cuts and the market pricing twice that, which is more accurately described as a baseline for a few small insurance cuts, plus some premium to account for the possibility of a hard landing that triggers outsized reductions.

In the December minutes released on Wednesday, the Fed said, of the financial conditions question,

Participants observed that, after a sharp tightening since the summer, financial conditions had eased over the intermeeting period. Many participants remarked that an easing in financial conditions beyond what is appropriate could make it more difficult for the Committee to reach its inflation goal.

That was notable, but I doubt seriously the market cares at this juncture. I’ve said this again and again: The Fed believes the disinflation process is far enough along that any rekindled wealth effect from rising stock and home prices is unlikely to derail progress towards 2%, or at least not enough to warrant any sort of meaningful pushback on the market.

Again, you could extract a hawkish message from the December minutes if you were so inclined, but to be blunt: It’s hard to understand how anyone who, in their professional capacity, is required to read the FOMC minutes, ever learns anything from them. If your job description entails obsessing over Fed rhetoric such that accounts of the last meeting are required reading, nothing in the minutes should come as a surprise to you.

RRP came up, of course. Relatedly, officials had a preliminary chat about the end of QT. “Several” participants suggested it’d be a good idea to begin the discussion of what factors should guide any decision to slow the pace of balance sheet runoff “well before” that decision is made, so that the Fed can “provide appropriate advance notice to the public.”

As far as the macro goes, a room full of PhDs “generally perceived a high degree of uncertainty surrounding the economic outlook.” I concur, doctors.