The Federal Reserve's minutes didn't tell us anything we didn't already know. To summarize: Price increases are slowing, but inflation is still worryingly above 2%. Hence, interest rates need to continue rising. February's quarter-point hike received unanimous support, but a few members wanted rates to increase at a more aggressive pace.
Even though investors have heard those warnings before, markets fell. The Dow Jones Industrial Average lost 0.26% and the S&P 500 dropped 0.16% — but the Nasdaq rose 0.13%, buoyed by a 12.5% jump in Palo Alto Networks. Still, the larger sell-off in markets suggests that investors hoping for a dovish tone in the minutes were disappointed.
Moreover, there are warning signs that the Fed is growing increasingly aggressive in its fight against inflation. It's true that there was "no effort in the minutes to flag the possibility of stepping back up to a 50bp pace of hikes," in the words of Krishna Guha, head of global policy and central bank strategy at Evercore ISI. But recall that the meeting was held before the Fed had information about January's out-of-this-world labor picture, the higher-than-expected consumer price index reading and rebounding retail sales.
It might be more prudent, then, to listen to fresher comments by Fed officials, such as Loretta Mester and James Bullard, who both advocate for a 50-basis points hike. Bullard even thinks the U.S. economy can remain aloft despite the turbulence caused by higher interest rates. Despite Fed hawkishness, signs point to a no-landing scenario, which should give investors some comfort.
