Could FOMC Minutes From March 20 Appear More Hawkish Than Powell?
FOMC minutes from March 20 are due on April 10. Powell’s press conference at that meeting and his subsequent comments have been relatively dovish, downplaying recent strong data though he has also sounded in no hurry to ease. The minutes may show a significant minority expressing greater concern on the strong data, reinforcing the perception of a Fed in no hurry to cut rates.
Initial focus on the meeting was whether the dots would shift from seeing 75bps of easing in 2024. The median dot was unchanged for 2024, but it was a close thing with only one more individual required to shift the median to 50bps. Several respondents did shift their views in a more hawkish direction, with March showing nine dots above the median rather than eight, and only one below the median rather than five. The median dot for 2025 did shift higher by 25bps, now seeing 75bps of easing rather than 100bps.
Chairman Jerome Powell’s press conference was seen as quite dovish by the markets, still expecting easing this year and stating that the Fed would not overreact to (or ignore) stronger than expected inflation data for January and February, when core CPI rates were rounded up to 0.4% on the month. He subsequently welcomed a February core PCE price index that came in below 0.3% before rounding but was still stronger than the late 2023 trend, though also stated that with the economy strong there was no hurry to cut rates. The message is that progress on inflation is expected to resume, and if that is confirmed the Fed will be able to start easing.
However, it is also the case that if there is further disappointment on inflation easing may have to wait longer than markets currently expect. We expect a significant minority express these concerns in the minutes. Some speakers have sounded more hawkish than Powell, notably Governor Christopher Waller, who said on March 27 that recent data suggest it is prudent to hold rates for longer than previously thought. Atlanta Fed Governor Raphael Bostic has stated he shifted his expectation to only one rate cut in 2024 from two, and he is a voter this year. In fact all four of this year’s rotating voters have sounded cautious recently, with Richmond Fed’s Thomas Barkin expressing disappointment with recent data and San Francisco Fed’s Mary Daly and Kansas City Fed’s Loretta Mester also stressing that there is no urgency to cut.
The tone of the March 29 minutes may be similar to those of January 19, which we classified as cautious rather than hawkish, when most noted the risks of easing too quickly and only a couple pointed to the risks of waiting too long. However the caution evident in January is likely to have been strengthened by subsequent data.
Ahead of the March 20 meeting the Fed had signaled that there would be discussion on the balance sheet and the minutes may cover this in detail. Powell in his press conference noted that the FOMC expected to slow the pace of quantitative tightening fairly soon, recalling tensions that emerged in markets in 2019, though this did not mean that it would end earlier. There are likely to be a diversity of views on this, with Minneapolis Fed’s Kashkari feeling balance sheet reduction can continue as easing commences, but it looks likely that QT will start to be tapered before the Fed starts to ease policy.