Fed November 2022 Minutes Show Policy Splits Deepen

The FOMC is starting to show substantive policy divergence, according to the minutes of the latest meeting.

The policy issue garnering the strongest support within the FOMC was moving to 50bp hikes per meeting, either at the 14 December or 1 February meetings. The minutes said, ‘a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.’

December is not a done deal yet. The minutes added, ‘A few participants commented that slowing the pace of increase could reduce the risk of instability in the financial system. A few other participants noted that, before slowing the pace of policy rate increases, it could be advantageous to wait until there were more concrete signs that inflation pressures were receding significantly.’

The use of ‘a few’ to describe both the number of participants arguing for and against a slowdown suggests December is not agreed yet. I am still holding out for a January shift because I expect that both NFP and PCE to surprise on the upside (for a description of minutes conventions in describing support for a view see here).

There was less agreement around basing policy decisions on incoming data: ‘Many participants commented that there was significant uncertainty about the ultimate level of the federal funds rate and that their assessment of that level would depend, in part, on incoming data’. Many is not a majority: if there had been one, the minutes would have said so.

There was even less of an agreement on a higher terminal rate: ‘various participants noted that their assessment of the ultimate level of the federal funds rate was somewhat higher than they had previously expected.’ The key word is ‘various’, which is not part of the usual minutes vocabulary to describe the strength of FOMC support for a view or policy option. I assume ‘various’ means some, definitely less than many, and well short of a majority. 

Chair Jerome Powell has more control over the FFR decision than over the terminal rate since the SEP is a projection prepared ahead of the meeting by each participant independently, though participants have the option of resubmitting their projection at the end of the first day.

The minutes suggest a bigger dispersion in the 2023 dot than in the September SEP (Chart 1).  The maximum is likely to increase by more than the median. With inflation stabilizing, the doves have been able to reassert their views, and this is what the minutes show. The pickup in inflation I expect will likely see the FOMC consensus shift more hawkish, though this likely is a 2023 theme.

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

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