U.S. Federal Open Market Committee (FOMC) Meeting Minutes – December 2022
Originally Posted: January 4, 2023, 2 PM ET
Updated: January 4, 2023, 2:15 PM ET
The Federal Open Market Committee’s meeting minutes from the December 2022 Fed meeting are out. It doesn’t matter if you’re trading penny stocks are trying to time an entry into companies like Apple (NASDAQ: AAPL) or Tesla (NASDAQ: TSLA), the December Fed minutes have a history of shifting markets. Over the last year and a half, economic data has dramatically impacted investor sentiment.
Furthermore, the FOMC and other global central banks have continued setting the tone for what the market should expect in terms of inflation, rate hikes, and clues for a potential 2023 recession. As we digest these latest December Fed meeting minutes, let’s also recap the meeting itself because it certainly made its mark on the year-end rally (or lack thereof).
December 2022 Fed Meeting Recap
When it came to the 2022 December Fed meeting and Chairman Powell’s press conference, all eyes were on the pace and frequency of future rate hikes. Unfortunately, the stock market didn’t get what it wanted in a dovish Jerome Powell. Instead, a notably more hawkish tone set the stage of a muted finish to the already volatile year of 2022.
Here are some of the top takeaways from the December FOMC meeting:
- Target Fed Funds Rate of 5.1% in 2023, 4.1% in 2024, 3.1% in 2025 with Longer run of 2.5%
- The Board of Governors of the Federal Reserve System voted unanimously to raise the
interest rate paid on reserve balances to 4.4 percent, effective December 15, 2022. - In a related action, the Board of Governors of the Federal Reserve System voted
unanimously to approve a 1/2 percentage point increase in the primary credit rate to
4.5 percent, effective December 15, 2022. - Undertake open market operations as necessary to maintain the federal funds rate
in a target range of 4-1/4 to 4-1/2 percent. - Conduct overnight repurchase agreement operations with a minimum bid rate of
4.5 percent and with an aggregate operation limit of $500 billion; the aggregate
operation limit can be temporarily increased at the discretion of the Chair. - Conduct overnight reverse repurchase agreement operations at an offering rate of
4.3 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. - Roll over at auction the amount of principal payments from the Federal Reserve’s
holdings of Treasury securities maturing in each calendar month that exceeds a
cap of $60 billion per month. Redeem Treasury coupon securities up to this
monthly cap and Treasury bills to the extent that coupon principal payments are
less than the monthly cap. - Reinvest into agency mortgage-backed securities (MBS) the amount of principal
payments from the Federal Reserve’s holdings of agency debt and agency MBS
received in each calendar month that exceeds a cap of $35 billion per month. - Allow modest deviations from stated amounts for reinvestments, if needed for
operational reasons. - Engage in dollar roll and coupon swap transactions as necessary to facilitate
settlement of the Federal Reserve’s agency MBS transactions.
Frequently Asked Questions About The Federal Open Market Committee Meeting Minutes
When Are The Fed Minutes Released?
Fed Meeting Minutes are released three weeks after each FOMC meeting.
What Are The Federal Open Market Committee Meeting Minutes?
According to the Federal Open Market Committee, the Fed meeting minutes “provide a timely summary of the discussion during the meeting and the decisions taken at the meeting. The minutes describe the views expressed by policymakers and explain the reasons for the Committee’s decisions. The minutes can help the public interpret economic and financial developments and understand the Committee’s decisions. As an official record of the meeting, the minutes identify all attendees, and provide a complete record of policy actions taken, including the votes by individual members on each policy action.”
FOMC Meeting Minutes for December 2022
This is a developing story. Statements from the December FOMC meeting minutes will be updated as new information is released.
On Inflation Outlook
Regarding the outlook for inflation in the United States, inflation compensation implied by Treasury Inflation Protected Securities declined over the period, responding to lower-than-expected consumer price index (CPI) data and a sizable drop in oil prices.
Participants noted that since the November meeting, financial conditions had eased, with the market-implied path for the federal funds rate beyond 2023 and longer-term yields coming down noticeably.
On Monetary Policy
Regarding the outlook for monetary policy, both market- and Desk survey-based measures indicated expectations for the Committee to maintain elevated policy rates through 2023. In the December survey, the median respondent’s modal expectation for the path of the federal funds rate in 2023 shifted higher by 25 basis points relative to the November survey.
Looking ahead to year-end, market participants anticipated limited pressures. The manager pro team noted that if transitory pressures emerged in money markets, the Federal Reserve’s backstop facilities are available to support effective policy implementation and smooth market functioning.
On Fed Funds Rate
The expected path of the federal funds rate implied by a straight read of financial market quotes ended the intermeeting period lower, largely reflecting data releases that pointed to a larger-than-expected moderation in inflation. Medium-to-longer-term nominal Treasury yields declined substantially over the intermeeting period, driven primarily by lower-than-expected inflation data releases, which appeared to prompt a substantial reduction in investors’ concerns about the possibility that inflation would remain high for a long period.
On Economic Outlook
The forecast for U.S. economic activity prepared by the staff for the December FOMC meeting was not as weak as the November projection. Recent data suggested that real GDP growth in the second half of 2022 was stronger than previously expected, but economic growth was still forecast to slow markedly in 2023 from its second-half pace. Broad financial conditions were projected to be somewhat less restrictive than previously assumed, as the effects of a higher path for equity values and a lower path for the dollar more than offset a higher medium-term trajectory for interest rates. Nevertheless, the forecast for U.S. real GDP growth through 2025 remained subdued. The staff slightly lowered its outlook for potential output, reflecting a lower expected trend in labor force participation.
On a four-quarter change basis, total PCE price inflation was expected to be 5.5% in 2022, while core inflation was expected to be 4.7%, both lower than in the November projection.
The FOMC said that in light of the heightened uncertainty regarding the outlooks for both inflation and real economic activity, most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance.
December FOMC Policy Action Plan
The action plan moving forward, as outlined in the FOMC Meeting Minutes, include the following:
- Undertake open market operations as necessary to maintain the federal funds rate in
a target range of 4¼ to 4½%. - Conduct overnight repurchase agreement operations with a minimum bid rate of 4.5% and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair.
- Conduct overnight reverse repurchase agreement operations at an offering rate of 4.3% and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily
increased at the discretion of the Chair. - Roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
- Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.
- Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
- Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.
Stock Market Reaction After December FOMC Meeting Minutes
Following the publication of the Fed Meeting Minutes from December 2022, major indexes remained choppy. The SPDR S&P500 ETF (NYSE: SPY) dropped sharply to retest levels below $383, the Nasdaq ETF (NYSE: QQQ) followed suit and dipped back below its median level of $2.66, and some of the most-watched stocks including Apple (NASDAQ: AAPL), Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN) approached levels near their lows of the day.
Overall, the reaction to the latest round of FOMC minutes was not as aggressive as some had expected. The Board of Governors of the Federal Reserve System voted unanimously to approve a ½% point increase in the primary credit rate to 4.5 %, effective December 15, 2022. It was agreed that the next meeting of the Committee would be held on Tuesday–Wednesday, January 31–February 1, 2023.
