As a reminder, the FOMC raised the fed funds rate target by 25bps in December, in line with the analyst median forecast.

The central bank also narrowed the trajectory of rate hikes going forward, now envisaging two hikes in 2019, and one in 2020 (previously it had seen three hikes in 2019 and one in 2020). Crucially, the FOMC lowered its estimate of the neutral rate (to 2.8% from 3.0%), and additionally, the central bank softened its guidance on future rate hikes, saying that “some further gradual increases” to rates (versus the previous “further gradual increases”), even as the market continues to expect that the Fed's rate hike cycle is now over and even expects a rate cut in 2020. In terms of risks to the outlook, the Fed continues to see these as “roughly balanced”.

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But the market is entirely rejecting The Fed's messaging and today's Minutes may hold some color for just how hawkish or dovish The Fed really is... 

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And, since The Fed hiked rates in December, stock markets have turmoiled back to unchanged. However, one look at the chart below shows that it was in fact only stocks that were chaotic - the trend higher in bonds and bullion (and lower in the dollar) was relatively smooth...

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And at the same time as stocks have yo-yo'd so have the market's expectations for just how dovish The Fed will be this year...

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In fact, the last week has seen almost all dovishness priced OUT from 2019.

And so all eyes are on the Minutes to see if the "not dovish enough" sentiment within the statement was watered down from a more (or less) dovish perspective in the actual meetings...

It seems the dovishness was deeper in the meeting:

• *FED OFFICIALS SAW EXTENT, TIMING OF FUTURE HIKES AS LESS CLEAR
• *MANY OFFICIALS FELT FED COULD BE PATIENT ON FURTHER RATE HIKES
• *FED: A FEW OFFICIALS FAVORED NO RATE INCREASE AT DEC. MEETING
• *FED: SOME OFFICIALS NOTED DOWNSIDE RISKS MAY HAVE INCREASED

In other words, the Minutes revealed that the Fed took a more dovish approach to further rate increases than the statement indicated.

“Many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming,’’

And some of the key highlights:

On The Fed's market-dependency:

Asset prices were volatile in recent weeks, reportedly reflecting a pullback from risk-taking by investors. In part, the deterioration in risk sentiment appeared to stem importantly from uncertainty about the state of trade negotiations between China and the United States. In addition, investors pointed to concerns about the global growth outlook, the unsettled state of Brexit negotiations, and uncertainties about the political situation in Europe.  

On the specifics of the risks facing the U.S.:

"Participants discussed five distinct downside risks to the outlook, including: a sharper-than-expected decline in global growth; a faster fading of fiscal stimulus; heightened trade tensions; further tightening of financial conditions; and a greater-than-expected negative impact from monetary policy tightening so far.''

On the neutral rate :

"With an increase in the target range at this meeting, the federal funds rate would be at or close to the lower end of the range of estimates of the longer-run neutral interest rate, and participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy. Against this backdrop many participants expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming."

On cautious stance:

"A number of participants noted that, before making further changes to the stance of policy, it was important for the Committee to assess factors such as how the risks that had become more pronounced in recent months might unfold and to what extent they would affect economic activity, and the effects of past actions to remove policy accommodation, which were likely still working their way through the economy."

On FOMC members urging no rate hike in December:

"A few participants, however, favored no change in the target range at this meeting, judging that the absence of signs of upward inflation pressure afforded the Committee some latitude to wait and see how the data would develop amid the recent rise in financial market volatility and increased uncertainty about the global economic growth outlook."

On the contrast between the economy and markets:

"In assessing the economic outlook, participants noted the contrast between the strength of incoming data on economic activity and the concerns about downside risks evident in financial markets and in reports from business contacts."

On being even more data-dependent:

"With regard to the postmeeting statement, members agreed to modify the phrase ‘the Committee expects that further gradual increases’ to read ‘the Committee judges that some further gradual increases.’ The use of the word ‘judges’ in the revised phrase was intended to better convey the data-dependency of the Committee’s decisions regarding the future stance of policy; the reference to ‘some’ further gradual increases was viewed as helping indicate that, based on current information, the Committee judged that a relatively limited amount of additional tightening likely would be appropriate."

This new messaging fits with Powell who has already pivoted since the meeting (alongside his pals Yellen and Bernanke) to reassure markets that The Powell Put is struck almost as high as the Yellen Put.

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Full Minutes Below...