Central Bank Watch – Week Ahead Focus on Fed Minutes Looking for Clues on Rate Cuts

With the Christmas and New Year’s holidays it’s a very quiet time for Central Banks with no surprises from the BoJ Summary of Opinions and Minutes from the Bank of Korea and Reserve Bank of India. In the New Year it all begins again FOMC minutes to expand on rate cut dialogue with memories of last year’s first Fed meeting that started the rise in rates and sell off in equity markets from record highs still fresh. FOMC Member Barkin speaks twice, and the Mexico central bank releases its minutes also. Key macros include US and Canadian jobs in the first week. We also get PMIs from China, US-ISM, India, Mexico, Brazil, Eurozone core CPI and Inflation from Asia-Pacific and LatAm.

The Treasury market continues to respond to hot geopolitical risk, hotter inflation, greater supply and credit risk. Curve shapes are being bent as the US economy continues to grow much faster than the non-inflationary speed limit and is outpacing many other major industrialized economies.

Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.

Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.

In the Week Ahead

In the week ahead we have:

Minutes to the December 12th – 13th FOMC meeting that culminated in a violent reaction in favor of easier financial conditions will arrive on Wednesday afternoon at 2pmET. The dilemma facing the Federal Reserve is it is trying to guide expectations for modest easing next year only to see markets push such expectations even higher and earlier.

Here are the reasons for caution:

  • Fed showing rate cuts in 2004 IS NOT a fresh development. They’ve been showing cuts in 2024 off 2023 levels in every single dot plot since June 2022.
  • Some say that it was a pivot because they removed an extra hike for this year from the September 2023 dot plot. While that’s true, it shouldn’t have surprised anyone. Everyone thought the dots would flatten out this year. Markets had removed another hike long ago. FOMC officials were increasingly guiding they thought they might be done before the recent meeting.
  • The fact they added an extra 25bps to cuts in the median projection for next year was taken as evidence of a pivot.
  • Some are saying there’s a broader consensus on the FOMC in favor of easing. BUT Next year’s 75bps of easing by the median participant masks the fact that there are only six out of 19 dots in that camp with four calling for -100bps and one calling for -175bps, but in the other direction there are five saying they favor -50bps, 1 favoring only -25bps and two saying they shouldn’t be easing at all. You call that a consensus?
  • Chair Powell did intimate that the minutes would contain a further discussion on when to cut when he was asked during his recent press conference about when it will begin to become appropriate to begin easing and responded with “That was a discussion point in our meeting today.” Since the minutes recap the discussion, they are very likely to expand upon the dialogue.
  • One key may be reference to the breadth of support against prematurely easing monetary policy using the Fed’ language that connotes frequency of citation (none, one, a couple, a few, some, several, many, most, generally all etc).

Central Bank Highlights This Past Week:

This week’s central bank main events included:

Nothing of note

Previews come from Scotiabank and other sources.

To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.

Most of the G10 central banks may complete their rate hike cycles around the middle of the year or earlier, the unwinding of central bank balance sheets may continue longer, depending on the damage done.

Eyes on the Bond Market

US Bond Watch

U.S. Treasuries closed the week with a slate of economic data that largely went confirming a soft-landing story. The November Personal Income and Spending Report, which featured a 0.4% increase in real disposable personal income, a 0.3% increase in real spending, and disinflation in both the PCE Price Index and Core PCE Price Index. The latter underpinned increased expectations in the fed funds futures market for six rate cuts in 2024, starting in March. The 2-yr note yield settled ten basis points lower this week at 4.33%. The 10-yr note yield declined two basis points this week to 3.90%. Activity in the Treasury market was also supported by safe-haven trading after geopolitical angst in the Middle East. A.P. Moller-Maersk A/S. and CMA CGM, two of the world’s largest shipping firms decided to re-route ships following attacks on vessels in the Red Sea by Houthi militants.

The market will be closed Monday for Christmas Day; Boxing Day will leave many European markets, Australia and Canada closed on Tuesday as well.

Yield Watch


  • 2-yr: unch at 4.33% (-10 bps for the week)
  • 3-yr: -1 bp to 4.04% (-9 bps for the week)
  • 5-yr: unch at 3.87% (-4 bps for the week)
  • 10-yr: +1 bp to 3.90% (-2 bps for the week)
  • 30-yr: +2 bps to 4.05% (+4 bps for the week)

Highlights – Federal Reserve

  • Federal Reserve Credit declined $10.8bn last week to $7.691 TN.
  • Fed Credit was down $1.210 TN from the June 22nd, 2022, peak.
  • Over the past 223 weeks, Fed Credit expanded $3.964 TN, or 106%.
  • Fed Credit inflated $4.880 TN, or 174%, over the past 580 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt declined $1.6bn last week to $3.387 TN.
  • “Custody holdings” were up $78.3bn, or 2.4%, y-o-y.

Fed 2023 Bank Stress Tests.

Busy Central Bank Week Ahead:

This Week’s Interest Rate Announcements (Time E.T.)

Monday, January 1, 2024

  • None Seen

Tuesday, January 2, 2024

  • None Seen

Wednesday, January 3, 2024

  • None Seen

Thursday, January 4, 2024

  • None Seen

Friday, December 29, 2023

  • None Seen

This Week’s Central Bank Speeches, Meetings (Time E.T.)

Monday, January 1, 2024

  • New Year’s Day

Tuesday, January 2, 2024

  • 19:30 RBA Chart Pack Release

Wednesday, January 3, 2024

  • 08:30 FOMC Member Barkin Speaks
  • 14:00 FOMC Meeting Minutes

Thursday, January 4, 2024

  • 10:00 Mexico Monetary Policy Meeting Minutes
  • 16:30 Fed’s Balance Sheet
  • 16:30 Reserve Balances with Federal Reserve Banks

Friday, January 5, 2024

  • 13:30 FOMC Member Barkin Speaks

Federal Reserve FOMC Schedule 2023

The Fed with a Strong US Dollar

The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.

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Sources: TC WSJ Bloomberg Scotia Bank

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