The minutes from the Federal Open Market Committee’s October meeting provided unmistakable evidence of a split between hawks and doves, with a slight tilt toward the hawks, who made a persuasive point that there is a risk of higher inflation becoming entrenched.
The minutes, released on Wednesday, more than reflect the aggressive nature of the hawks, whose public remarks in speeches since the meeting have helped move the probability of a Fed rate hike back to 29.4% using futures and 35.3% using overnight index swaps as a benchmark.
Given that the jobs data for October and November will not be released until Dec. 16, after the FOMC’s meeting on Dec. 9-10, the fog of uncertainty for the Fed will have only partially eased.
Under such conditions, the Fed will not and should not cut rates.
More to the point, the following paragraph outlined what we think is the essential takeaway from the extraordinarily rich FOMC minutes:
“Participants generally noted that core inflation had remained elevated, as disinflation in housing services had been more than offset by higher goods inflation, reflecting in part the effects of tariff increases implemented earlier in the year. Several participants observed that, setting aside their estimates of tariff effects, inflation was close to the Committee’s target. Many participants, however, remarked that overall inflation had been above target for some time and had shown little sign of returning sustainably to the 2 percent objective in a timely manner.”
The Fed has not brought inflation down to its 2% in more than five years. Service inflation remains sticky and is offsetting the areas of the economy like rents where disinflation is occurring.
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