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PREVIEW: FOMC November 2021 meeting minutes

Published 2021-11-24, 05:10 a/m
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The Fed’s November 2-3rd meeting saw the announcement of QE tapering, where Treasury purchases were cut by an initial USD 10bln per month to USD 70bln for November, while MBS purchases were cut by USD 5bln per month to USD 35bln, as analysts had expected.

The same incremental M/M cuts are expected until the amount falls to zero, which will happen in June 2022, although recent commentary from Senior Fed officials – like the current Vice Chair Clarida – suggest that it might be appropriate to discuss a faster rate of tapering at the December meeting. Accordingly, the minutes will be eyed at for clues on what could warrant an adjustment of the pace of tapering, a move Powell said would be telegraphed in advance if the Committee was to go down that route.

The minutes will be released on November 24th, 2022 at 14:00EST/19:00GMT.

INFLATION

Credit Suisse highlights that although the latest CPI report was post the FOMC meeting, the report will likely suggest officials were already contemplating risks of having to lean more hawkish next year.

The Fed toned down its transitory language in its latest statement, tweaking the language to describe inflation as “expected to be transitory” (from “transitory”), while analysts noted that Powell was hesitant to use the phrase in his post-meeting press conference, and when he did, he acknowledged ‘transitory’ means different things to different people, a theme that will likely be reiterated in the minutes, which will also allude to many of the pricing issues are being driven by supply chain concerns, which monetary policy can do little to counteract.

MARKET PRICING

The Fed did little to push back on market pricing for rate hikes; that pricing has become more acute in wake of the announcement that Powell has been re-nominated for the Chair job, and not Fed Governor Brainard, who many considered a more dovish candidate.

A rate hike is now 60% priced for May 2022, and money markets have almost fully discounted three Fed rate hikes in 2022.

Back to the November meeting, Powell said the Fed focusses on what it can control, and it was time to taper, but was is not the time to raise rates as the Committee wants to give the labour market more time to heal further, although the Fed chair interestingly suggested it was possible that maximum employment could be reached in H2 next year, which would coincide with the end of the current taper schedule, and provided that inflation does not crater off, it would likely provide the conditions for lift-off.

Fed officials have been arguing that now was not the time to raise rates, and they wanted to conclude the taper process first, while reiterating that the taper process and lift-off are both subject to different considerations.

HAWKISH ADJUSTMENTS

While a faster taper is one hawkish tilt available, Fed's Bullard (2022 voter; hawk) has suggested that the Fed could act more hawkishly without raising rates, potentially by signalling they could quite possibly lift rates before the taper ends, or even to let the balance sheet run-off immediately after tapering.

Fed’s Clarida and Waller both suggested an adjustment of asset purchases may be appropriate in December, although the hawkish Waller was more aggressive in his calls, noting that rapid improvements in the labour market and high inflation make him favour faster tapering and a more rapid life-off in rates. Although these comments were made outside the Fed minutes timeframe, it will be interesting to see if these hawkish pathways are alluded to in the minutes.

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