Nomura: What we expect from the December FOMC Minutes

Nomura expects the FOMC minutes from December to highlight divisions within the Committee on the rate cut decision and 2025 policy outlook, alongside detailed discussions on fiscal policy impacts, neutral rate assumptions, and inflation risks.

Key Points:

• Committee Divisions:

  • While only Cleveland Fed President Hammack dissented against the December 25bp cut, Nomura suggests three additional “tacit” dissents based on the 2024 federal funds rate projections.
  • San Francisco Fed President Daly’s description of the cut as a “close call” indicates broader internal debate.

• Fiscal Policy Impacts:

  • Chair Powell mentioned preliminary incorporation of potential fiscal policy changes, including higher tariffs, into economic forecasts.
  • The minutes may shed light on how these assumptions influenced the inflation outlook and federal funds rate projections.

• Neutral Rate Discussions:

  • Varied views on the policy stance’s restrictiveness could reveal discussions on the neutral rate, with Powell emphasizing meaningful restrictiveness, while Hammack views policy as nearing neutral.

• Inflation Concerns:

  • Powell’s optimistic inflation outlook contrasts with participants’ shift toward greater inflation risk.
  • The minutes may capture debates on short-term noise from non-market services and goods, alongside broader concerns about inflation persistence.

Conclusion:

Nomura anticipates the December FOMC minutes will underscore internal divisions, fiscal policy considerations, and evolving views on inflation and neutral policy stance, offering valuable insights into the Fed’s deliberations and 2025 outlook.

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This article was written by Adam Button at www.forexlive.com.