Since the last FOMC meeting (Oct 29th), gold is the best performing asset (along with the dollar) as bonds, stocks, and oil are all down notably…

Source: Bloomberg

Rate-cut odds for the December meeting continued to tumble after Powell’s hawkish comments (and the follow-up FedSpeak). Today saw BLS confirm no more payrolls data before the next Fed meeting and that pushed expectations even more hawkishly lower…

Source: Bloomberg

As a reminder, The Fed cut rates by 25bps in the October meeting to 3.75-4.00%, with two dissenters: 1 hawkish (Schmid) and 1 dovish (Miran). Other non-voters have been out recently suggesting they did not support a cut.

While markets have made up their minds on the rate-cut decision, as we noted earlier, we’ll be watching for color on the hawk/dove split; but, most eyes will be on discussions around The Fed’s balance sheet (the end of QT) and the level of reserves being somewhere between ‘abundant’ and ‘ample’.

So, what does The Fed want us to know it was thinking during the meeting?

On the rate-cut decision, there is a hawkish bias (‘Several’ is less than ‘many’)

• *FED: `SEVERAL‘ SAID DECEMBER CUT `COULD WELL BE’ APPROPRIATE

  • Several participants said another cut in December “could well be appropriate in December if the economy evolved about as they expected” before the next meeting.

• *FED: `MANY‘ SAW DECEMBER RATE CUT AS LIKELY NOT APPROPRIATE

  • “Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year,” the minutes said.

The doves are doing God’s work on the jobs market…

“Most participants suggested that, in moving to a more neutral policy stance, the Committee was helping forestall the possibility of a major deterioration in labor market conditions.”

But… the hawks are there too to warn you off…

“Most participants noted that, against a backdrop of elevated inflation readings and a very gradual cooling of labor market conditions, further policy rate reductions could add to the risk of higher inflation becoming entrenched or could be misinterpreted as implying a lack of policymaker commitment to the 2 percent inflation objective.“

AI/Valuations are in the back of their minds…

Some participants commented on stretched asset valuations in financial markets, with several of these participants highlighting the possibility of a disorderly fall in equity prices, especially in the event of an abrupt reassessment of the possibilities of AI-related technology.

A couple of participants cited risks associated with high levels of corporate borrowing.

Finally, and perhaps the most notable line was with regard to inflation…

Simply put, the Minutes suggest that tariff inflation is no longer a pressing concern…

“Many of these participants also judged that, with more evidence having accumulated that the effect on overall inflation of this year’s higher tariffs would likely be limited, it was appropriate for the Committee to ease its policy stance in response to downside risks to employment.”

…which helps explain why so “many” of The Fed are increasingly focused on jobs.

Full Breakdown:

On current outlook:

• Participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the first half of the year.

• Many participants agreed that the Committee should be deliberate in its policy decisions against the backdrop of these two-sided risks and reduced availability of key economic data.

• Most participants suggested that, in moving to a more neutral policy stance, the Committee was helping forestall the possibility of a major deterioration in labor market conditions.

• Many of these participants also judged that, with more evidence having accumulated that the effect on overall inflation of this year’s higher tariffs would likely be limited, it was appropriate for the Committee to ease its policy stance in response to downside risks to employment.

• Most participants noted that, against a backdrop of elevated inflation readings and a very gradual cooling of labor market conditions, further policy rate reductions could add to the risk of higher inflation becoming entrenched or could be misinterpreted as implying a lack of policymaker commitment to the 2 percent inflation objective.

• Participants judged that a careful balancing of risks was required and agreed on the importance of well-anchored longer-term inflation expectations in achieving the Committee’s dual-mandate objectives.

On the neutral rate and financial conditions

• Some said policy would remain restrictive even after a 0.25ppt cut.

• Some, citing resilient activity, supportive conditions or real-rate estimates, said policy was not clearly restrictive.

• Some remarked that financial conditions we re supportive of activity.

On Inflation

• Participants noted inflation had moved up and remained somewhat above target; core inflation stayed elevated.

• Several said inflation excluding tariff effects was close to target.

• Many said inflation had been above target for some time with little sign of timely return to 2%.

• Most noted further rate cuts could add to risk of higher inflation becoming entrenched or could be misinterpreted as lack of commitment to 2% inflation objective

• Several cited persistent core non-housing services inflation as keeping inflation above 2%.

• Many expected further pickup in core goods inflation from tariff pass-through.

• Several highlighted uncertainty around tariff effects and firms’ delayed pricing.

• Several reported businesses planned gradual price increases due to higher tariff-related input costs.

• A few said productivity gains via automation or AI could limit pass-through.

• A few said a softer labor market would restrain pressures.

• A couple said lower immigration would lessen housing demand and strengthen housing disinflation.

• Many noted risks that prolonged above-target inflation could raise longer-term expectations.

Labor market & growth

• Participants observed slowed job gains and a higher unemployment rate before the shutdown.

• Participants saw indicators showing gradual softening without sharp deterioration.

• Many attributed the slowdown to reduced labour supply and less labour demand amid uncertainty.

• Many said structural factors, including Al-related investment, were dampening labor demand.

• Participants generally expected further gradual softening with less dynamism.

• Several warned low turnover and hiring hesitancy posed downside risks.

• A few saw rising unemployment in sensitive groups or concentrated job gains as signalling broader weakness.

• Some noted persistent divergence between subdued job growth and moderate GDP growth, possibly due to productivity gains and demographic constraints.

• Participants noted moderate activity; many reported firmer consumer spending.

• Many highlighted divergence across income groups, with high-income households supporting consumption and lower-income households showing price sensitivity.

• A couple warned that reliance on high-income spending created vulnerability.

• A couple noted continued housing-market weakness despite some stabilisation.

• Many highlighted strong technology and Al-related investment.

• A few said lower business taxes or regulatory easing would support activity.

• Some remarked that financial conditions we re supportive.

• A few cited ongoing agricultural headwinds from low crop prices, high input costs and weak foreign demand.

Balance sheet & QT & liquidity

• Almost all said it was appropriate to conclude runoff on 1 December or could support doing so.

• Most participants favored a fed portfolio matching the composition of treasuries outstanding

Asset prices:

• Several participants highlighted possibility of disorderly fall in stock prices, especially in event of abrupt reassessment of ai- related prospects.

Housing market and real estate commentary

• A couple noted continued housing-market weakness and affordability constraints.

Agricultural commentary

• A few cited headwinds from low crop prices, elevated input costs and weaker foreign demand.

Discussions of Artificial Intelligence

• A few participants suggested that potential recent productivity gains achieved through automation and AI may help businesses support their profit margins and limit the extent to which cost increases are passed on to consumers

• Many participants remarked that structural factors such as investment related to AI and other productivity-enhancing technologies may be contributing to softer labor demand.

• Some participants noted the apparent divergence between subdued job growth and moderate GDP growth, with several suggesting that this pattern might persist over time as advances in AI boost productivity growth while demographic factors constrain labor supply.

• Regarding the business sector, many participants highlighted strong investment in technology, particularly spending related to AI and data centers. Some participants suggested that those investments could boost productivity and thus aggregate supply.

• Broad equity indexes continued to rise over the period, with the largest technology companies performing strongly on market participants’ optimism about artificial intelligence (AI). The manager noted that rising stock prices were consistent with expectations for continued robust growth in earnings.

Read the full Minutes below: