Here’s Goldman Sachs’ analysis of the latest Federal Reserve monetary policy meeting:
BOTTOM LINE:
The December FOMC minutes noted that the committee would “continue to make decisions meeting by meeting,” leaving the FOMC’s options open for the size of rate hikes at coming meetings. We continue to expect the FOMC to slow the hiking pace to 25bp at the February meeting. “No” participants anticipated that it would be appropriate to reduce the funds rate this year. Participants welcomed the recent softening in inflation but stressed that “substantially more evidence” was required. Participants remarked that “activity appeared likely to expand in 2023 at a pace well below its trend growth rate” and that risks to the growth outlook are weighted to the downside.
MAIN POINTS:
1. The minutes to the December FOMC meeting echoed three of Chair Powell’s messages from the meeting’s press conference about the policy outlook. First, the minutes noted that “most” participants “emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance” and that the committee would “continue to make decisions meeting by meeting,” leaving the FOMC’s options open for the size of rate hikes at coming meetings. Second, “no” participants anticipated that cuts would be appropriate in 2023. Third, the minutes cautioned that “an unwarranted easing in financial conditions…would complicate the Committee’s effort to restore price stability” but did not express worry about the easing in financial conditions that had occurred in the runup to the meeting.
