This is a quickie preview of the Federal Reserve's FOMC December meeting Minutes from RBC, via the folks over at eFX
(ps. My preview is here)
When it comes to the Fed the focus has shifted to the pace of rate hikes. Some officials (Yellen included) have noted that the Fed "dots" (in the Summary of Economic Projections) are the best guide for gauging the anticipated path of tightening.This pace was not altered in the December SEP, and thus still impliesthe Fed's base case is for four hikes in 2016 - or 25bps at every other meeting.
As a result, the minutes may reveal this to be the "consensus" outlook amongst what is likely to be a wide range of views on the FOMC, while the market is still priced for a much shallower path (~2 hikes in 2016).
Note that the Fed gets to their "dots" projections with a very modest outlook on both jobs and inflation. Their 4.7% u-rate implies just over 100K in payroll growth and their 1.6% inflation call is hardly heroic. What this means is that the market is priced for (wrongly, in our humble opinion) a much more bearish economic outcome.
