Daily Market Color

FOMC Minutes: Fed Dovish but Uncertain of Rate Cut Timeline

Rates little changed despite FOMC minutes, overseas tension. Today’s FOMC minutes showcased a still-dovish Fed and an uncertain rate cut timeline, the latter of which immediately pushed rates 2-3bps higher across the curve. The move followed a peak morning rate rise of ~6bps and a sharp decline thereafter, while rates closed nearly unchanged. Meanwhile, bombings in Iran that killed nearly 100 people sent crude prices higher, as WTI crude rose 3.57% to above $73 per barrel, while Brent climbed 3.37% to over $78 per barrel. Equities dropped on the Fed minutes and elevated global risks, the SPX and DJIA down ~0.80% while the NASDAQ declined 1.18%.

U.S. Policy Rate Outlook Graph

FOMC minutes point to eventual pivot, but offer little guidance on specific timing. The Fed’s December meeting minutes reiterated some of what markets already know; the Fed acknowledges that the policy rate is at or near its peak, and cuts will likely begin in 2024. They noted “clear progress” on lowering inflation and are open to cutting rates if the trend continues. Still, Fed support for market-expectations of March rate cuts was absent and officials “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.” Separately, the minutes indicated that FOMC members may start thinking about paring back Quantitative Tightening (QT), a less discussed element of the tightening cycle. 

PCE (Personal Consumption Expenditures) History Graph

Bombings in Iran raise fear surrounding elevated global risks. Bombings near the gravesite of Iranian military officer Qassem Soleimani left over 90 people dead today, while hundreds of others were injured. The attacks were the latest of several recent developments that point to potential for broader global risks. Iran cited its opposition to Israel as the source of the attacks, though the group behind the bombings remains unclear. US State Department spokesman Matt Miller said, “we have no reason to believe that Israel was involved in this explosion.”

WTI (West Texas Intermediate) Crude Oil Futures Price Graph

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