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Following the last meeting of the FOMC, it seemed like the Fed was putting the final touches on its rate hiking cycle. In the post-rate decision presser, Chair Powell said that only a couple of rate hikes remained. Although the market still believed that the Fed would be forced to cut rates at some point in the near future, there was considerable satisfaction that monetary policy was starting to level off.

Two days later, NFP blew that consensus out of the water. The sudden drop in unemployment with a large number of new hires forced a recalibration of when the Fed might actually stop the hiking. Fed officials came out talking about labor tightness being a problem. A couple of weeks later, CPI fell as expected, but not by much. The prior month’s measure was revised higher, and the annual rate was above expected both on the core and headline. Although not out of bounds, it was one more point supporting the narrative that rates could keep going up more than the market expects.
 

Adjusting expectations

These changes in the perspective are relevant when analyzing the latest minutes from the FOMC. Members can adjust their comments in the minutes to reflect changing data, making the commentary more relevant to the current situation. So, there isn’t likely to be a significant difference between the views in the minutes, and the current opinion of FOMC voters in light of the two key data releases.

Given that situation, it appears that many members are adjusting their positions following the data. Even noted doves such as Kashkari are talking about the problems in the labor market. The jobs market was absent from the conversation in the previous months, as the Fed was pulling out all the stops to deal with inflation. Now that CPI appears to be retreating, attention is now focusing back on the labor situation.
 

Does that mean more hikes?

The FOMC minutes took on a fresh dimension last Thursday, when Fed’s Bullard, who isn’t a voter this time around, saw a 50bps hike at the next meeting as a distinct possibility. That was complemented by Mester saying she would have voted for 50bps at the last meeting (though not commenting specifically about the next meeting). She’s rotating on to the FOMC as a new voter now.

Analysts will be keen to tally up the amount of support for the 50bps hike last time to see how Mester’s inclusion on the Board will change the math. Following her comments, the number of economists expecting a “double” rate hike jumped and has continued to grow ever since.

Following the last meeting, the market seemed to be somewhat vindicated about the Fed not raising the rate significantly above 5.0%. Now it appears that the situation has turned around, and the upward pressure on rates in the near term might not be over. The minutes could help clear that up substantially, with the next Fed meeting still almost a month away

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