“Almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year,” the account of last month’s Fed meeting, published on Wednesday afternoon in the US, read.
To call the March FOMC minutes “stale” would be to materially understate the case. Even before a third consecutive CPI overshoot effectively ruled out a first-half rate cut, policymakers were second-guessing themselves and using public speaking engagements as opportunities to hedge.
Last week, for example, Neel Kashkari suggested the Fed might not cut at all in 2024. A day later, Michelle Bowman pretended she’s still willing to hike again. And Lorie Logan said it’s “much too soon” to start thinking about rate cuts.
You could argue those officials don’t represent the consensus on the Committee, but it’s a safe bet that “almost all participants” (to employ the language from the minutes) are now aligned with Logan in believing June’s “too soon” to be cutting rates in light of the latest jobs report and this week’s inflation update.
The minutes were an afterthought Wednesday, and notwithstanding a near consensus around the likelihood of cuts “at some point” this year, they anyway didn’t contain any passages with the potential to soften the CPI blow. Just the opposite, in my view.
“Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2%,” the account of the gathering said.
Recall that Jerome Powell, during last month’s press conference, conceded that the CPI reports from January and February didn’t do anything to increase officials’ confidence in the disinflation path. Wednesday’s release, covering March, surely dented whatever confidence the Committee had left.
Core inflation’s moving sideways in the US, at best. The CPI-derived “supercore” measures heated up in the March release. The Fed uses a metric based on PCE prices. If that series re-accelerates later this month (it cooled in the last release), you can expect a more stringent tone from Powell following the May meeting.
The March minutes contained the (now obligatory) nod to a better balance around the Fed’s dual mandate. “In the event of an unexpected weakening in labor market conditions,” the Fed could cut, but the text also said officials are open to “maintaining the current restrictive policy stance for longer should the disinflation process slow.”
Last week’s jobs report evidenced no weakening in “labor market conditions.” If anything, jobs growth is accelerating. The three-month moving average for the NFP headline moved up to 276,000. Meanwhile, “the disinflation process” has quite obviously “slowed.” Going by the minutes, then, the Fed needs to hold terminal “for longer.” Perhaps even in perpetuity. Larry Summers on Wednesday said they may need to hike again (for whatever that’s worth to you).
The account of the March meeting also contained some vague color on the eventual QT taper. The timeline’s “fairly soon” (that’s the same phrase Powell used during last month’s press conference) and in the beginning, the pace of runoff will be cut “by roughly half.”
The tentative plan is to keep the caps on MBS runoff unchanged (which is for now irrelevant given the read-through of subdued refi activity for prepayments and redemptions) while adjusting the cap on Treasury runoff in order to move towards a balance sheet that’s all (or mostly) Treasurys over the longer run.
