Next week's Fed minutes to have something for everyone - UBS

(Alliance News) - Analysts at UBS expect the upcoming Federal Reserve meeting minutes to have something for the hawks as well as the doves.

The Swiss bank expects a "range of views" to be evident, as the US central bank treads an uncomfortable path: balancing containing inflation and cutting a struggling economy some slack.

Minutes from the Fed's latest meeting will be released next week Wednesday at 1900 BST.

"The September FOMC meeting minutes released next week will likely contain all the hawkish news from the meeting," analysts at UBS commented.

"However, remember that the minutes contain the range of views on the committee. The minutes will likely also reflect many participants concerned about over-tightening, and moving too fast."

At the meeting, the Fed enacted a third-successive 75 basis point rate hike. It took the federal funds rate target range to 3.00% to 3.25%.

However, UBS noted that "nearly half of the committee appeared to think it was about time to

slow down the pace of rate hikes".

UBS added: "We can see that by looking at the policy rate assumptions in the September summary of economic projections. The dovish side of the policy debate will most likely be in these minutes too. Like the public debate among FOMC participants that takes place through their speeches, and has unfolded in recent days, these minutes should have both sides of the go fast versus maybe slow down debate.

"There may be something somewhere in these minutes for every narrative."

The Fed has now lifted rates by 3% this year. And dot-plot projections suggest there are more rate hikes to come.

The median forecast is for the federal funds rate to stand at 4.4% at the end of 2022, up from the June forecast of 3.4%.

UBS added: "One particular discussion of interest, in the [summary of economic projections], the median FOMC participant assumes a federal funds rate that reaches 4.6% by the end of 2023, and remains restrictive through 2025. The median participant also projected PCE inflation would return to the 2.0% objective in 2025. Thus we can see in the SEP the policy that the FOMC assumes is sufficient to complete their goals. The terminal rate of this hiking cycle the median participant thinks is 4.6%. Six participants thought the terminal rate should be 4.9%. Another six thought it should be 4.4%.

"One of the main takeaways from the press conference was Chair Powell's frank acknowledgement that the hiking could cause a recession, and if so, no one knows how severe a recession that might be. But that would be worth it to restore price stability. The discussion surrounding the terminal rate could shed some light on how readily the FOMC is willing to risk the expansion."

The Swiss bank does not expect the minutes to offer much forward guidance, however.

"Instead, we expect lots of data dependent language."

Ahead of the minutes, there appears to be a growing conviction that the Fed will need to slow the pace of hikes, as economic data worsens.

Stocks surged earlier in the week, amid hope that the Fed would. Equities traded more nervously on Thursday, however, as that notion faces a huge test with a key US jobs report on Friday.

US employment growth is expected to slow, though if nonfarm payrolls come in higher than expected, it could strengthen the case for more rate hikes.

By Eric Cunha; [email protected]

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