FED: September Minutes Seen Framing Lively Debate Over The Path Ahead (1/3)

Wednesday (2pm ET) sees the publication of the minutes to the September FOMC meeting. Most of the 19 members of the Committee have already spoken on their monetary policy outlook since the meeting (just four have not: Waller, Barr, Cook and Paulson, and Waller’s dovish views are well-known), so the Minutes should bring limited surprises on the rate outlook. Indeed there is a pretty good idea now of where most individual “dots” were on the September SEP.   And with so little key data having been provided since the decision to reinitiate the easing cycle with a 25bp cut, there has been little more to change participants’ outlooks.

• That doesn’t mean the minutes are unimportant – indeed markets may indeed be increasingly sensitive to any signals sent in this edition, if only because of what will likely be a continuing dearth of data going into the pre-Oct 29 blackout communications period (at this point getting September Nonfarm Payrolls or CPI reports before the evening of October 17 would be a welcome surprise).
• A key question is how cautious the Minutes portray the stance on future cuts. With a split Committee evident in both the Dot Plot and Statement, as well as Chair Powell’s post-meeting commentary, we would expect some caution against signalling commitment to front-loaded cuts, and only limited discussion about outsized (ie 50bp) cuts (Powell said re this that “there wasn’t widespread support at all”). This makes for what is likely a naturally cautious tone to the Minutes. So explicit openness  to those possibilities would be considered dovish, especially since there was probably a lively debate over the path forward given the meeting communications.
• Indeed, Powell’s only appearance since the meeting appeared to reiterate the press conference’s messages, in particular that there were no “risk-free” paths ahead. Recall that at the meeting (MNI review here), the statement revised the description of labor market conditions to reflect weaker conditions and mounting risks to the downside, which were of course the key factor that spurred the Fed to cut. But the projections actually showed stronger growth compared with the prior quarter’s projections, no deterioration in the labor market, and higher inflation through end-2027, with no return to target until end-2028. And the statement took the time to add language noting that inflation had moved up, which it hasn’t said for several iterations. Against this backdrop, Powell summed up the 25bp reduction as a “risk management cut”.