Highlights of the March 17-18 FOMC Minutes:
- 'Vast majority' saw upside risks to inflation and downside risks to employment as elevated
- 'Many' judged it would likely become appropriate to lower rates if inflation declines in line with expectations
- 'Some' saw a 'strong case' for a two-sided description of future rate decisions — i.e. acknowledging hikes could be appropriate
- 'A couple' of participants pushed their timing for rate cuts further into the future
- 'Many' raised the concern that persistent oil prices could call for rate increases
- 'Most' said a protracted Middle East conflict could soften labor markets enough to warrant additional cuts
- 'Most' said it was too early to know how developments in the Middle East would affect the economy
- Staff built in 'only a small effect' on activity from lower stocks and higher crude
- Staff economic outlook not as strong as the January meeting's
- Participants generally viewed the policy rate as within a range of plausible estimates of its neutral level
The big headline here is the hike discussion. "Some participants" saw a strong case for adding language that would signal rate increases could be appropriate if inflation stays above target. That's a notable escalation from where we were at the January meeting, when risks were described as "roughly balanced." We've gone from balanced, to tilted, to actively debating the need for hike language in just two meetings.
That said, read the whole sentence: the hike discussion was framed within a "two-sided" description of risks, meaning those participants wanted the statement to reflect both cuts and hikes as possibilities. It's not the same as calling for imminent tightening. But the direction of travel is unmistakable.
The other key theme is the Fed's discomfort with the labor market. The language about vulnerability in a "low-hiring environment" is worth paying attention to. Many participants warned that a further drop in labor demand could push unemployment "sharply higher" — that's unusually blunt language for the Fed. The concentration of job gains in a few sectors like health care was flagged as a potential warning sign, not a source of comfort.
So you've got the classic two-sided trap: inflation too high, labor market fragile, and an oil shock that threatens to make both worse simultaneously. No wonder they're paralyzed.
On the private credit side, there's a buried nugget worth flagging: "notable increases in redemption requests at several private credit funds" and growing concerns about software-sector loan exposure to AI disruption. The staff said they're monitoring it closely. That's the kind of thing that's fine until it isn't.
The market is pricing about 10 bps of easing by December — roughly a 40% chance of a single cut. These minutes are consistent with that skepticism. The Fed is closer to neutral than it was six months ago, and some members are openly contemplating the other direction. The ceasefire today changes the calculus somewhat — if oil settles back toward $85-90 and stays there, the inflation urgency fades and the employment-side risks dominate. But if this truce falls apart in two weeks, we're right back to the worst-case scenario these minutes describe.
Like anyone cares about these minutes on ceasefire day, though. The 9-out-of-10 rule applies for FOMC Minutes: fade the move.
