We Got the Receipts
Like scrolling back in the group chat to put someone on blast or going back to check the tape after a BS foul call, the Fed has officially released the receipts from their latest FOMC meeting. Finally.
The Federal Reserve Meeting Minutes, aka the Fed Minutes, are generally released a few short weeks after any given FOMC meeting to give us some insight into the decision-making processes behind these obviously flawless geniuses steering this $23.3tn ship. It's one of Mr. Market's favorite events, and boy, did this one fail to disappoint.
Volume was higher than usual, but the conviction behind that volume was far from it. The roller coaster that your portfolio rode yesterday was largely driven by these minutes, and as the main US indices finished mostly flat, the only thing that was clear was that the message was decidedly unclear.
First and foremost, FOMC officials appear just as confused as the rest of us. The overarching message was basically JPow saying, "yeah, inflation is starting to retreat, but idk if it's enough to make me stop with these rate hikes."
One of the most important and defining parts, however, came rather early in the doc as officials made clear that "Almost all participants agreed that it was appropriate to raise the target range of the federal funds rate 25 basis points…" and that reducing hikes to this level would serve to "determine the extent" of further hikes.
Further, officials continued to get creative with their phrasing to say essentially the same thing they've been saying for quite a while. Notably, "...participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook." Gee, thanks!
Mr. Market did get a little spooked with some turn of phrase, however, including "Even so, participants agreed that, while there were signs that the cumulative effect of the Committee's tightening of the stance of monetary policy had begun to moderate inflationary pressures, inflation remained well above the Committee's longer-run goal of 2% and the labor market remained very tight."
To translate, the minutes above basically tell us that JPow and the homies are seeing some sign that inflation is receding, but a lingering and extremely tight labor market is adding quite the challenge to getting inflation back to 2%. See what I mean? It's the same old song and dance.
Part of the reason why the market likely reacted in such a way is due to the wide range of varying interpretations from these minutes. Sure, never are the Fed Minutes perfectly clear, but this discussion seems to be purposely vague and, tbh, a little sus.
Lastly, the minutes also go to show that it's not just you, me, and your broker that are taking after a certain Richard Linklater movie in this economic environment. For now, the market seems to expect the Fed to continue to hike in 25 bps increments, with rates peaking later this year. According to Fed Governor Bullard, 5.375% is a solid guesstimate for the target rate. According to the bond market, that maxes out at 5.12%. It might not seem like a lot, but that spread implies we're at least one 25 bps hike out of whack.
Let the games begin.