One of the most interesting parts of today's Fed Minutes release was their characterization of the market's surprise at December announcement.  At best, the Fed was seen as being a shade too optimistic about the economy and the ability to remain in a "steady as she goes" stance with monetary policy.  At worst, the Fed was being oblivious to burgeoning risks. 

While there were real risks to consider, the most obvious risk was the fact that stocks were in full panic mode. Granted, it's not the Fed's job to placate the stock market, but they sometimes get wrapped up in such things anyway.  This time around, they basically admitted as much, saying they heard that folks were surprised at their December announcement, but that those folks were now pacified by recent speeches where the Fed had talked about being patient on rate hikes.

In other words: "we heard you and we handled it."  In my view, this would have been worth a bit of a hawkish reading on today's minutes (because it implies some of January's Fed friendliness was simply in response to stock market whining and had less to do with actual economic developments), but the Fed has done a good enough job of tying the friendliness to actual economic developments, apparently!

Bonds agreed, considering they didn't really move at all in the bigger picture.  The same could be said for stocks, with the S&P heading out the door precisely in line with pre-Fed levels.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
100-12 : -0-01
Treasuries
10 YR
2.6460 : +0.0010
Pricing as of 2/20/19 5:03PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:33PM  :  Fed Minutes Suggest January Meeting Was a Response to Dec Backlash
9:59AM  :  Modest, Deceptive Early Pressure For Treasuries; Not Much For MBS

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Chris Stevens  :  "Comments regarding dot plot- "A few participants expressed concerns that in the current environment of increased uncertainty, the policy rate projections prepared as part of the Summary of Economic Projections (SEP) do not accurately convey the Committee’s policy outlook. These participants were concerned that, although the individual participants’ projections for the federal funds rate in the SEP reflect their individual views of the appropriate path for the policy rate conditional on the evolution of the economic outlook, at times the public had misinterpreted the median or central tendency of those projections as representing the consensus view of the Committee or as suggesting that policy was on a preset course. However, some other participants noted that the policy rate projections in the SEP are a valuable component of the overall information provided about the monetary policy outlook""
Matthew Graham  :  ""participants agreed that it was important to be flexible in managing the process of balance sheet normalization, and that it would be appropriate to adjust the details of balance sheet normalization plans in light of economic and financial developments if necessary""
Matthew Graham  :  "I guess they weren't looking at MBS spreads spike as MBS reinvestments hit zero"
Matthew Graham  :  ""Participants discussed market commentary that suggested that the process of balance sheet normalization might be influencing financial markets. Participants noted that the ongoing reduction in the Federal Reserve's asset holdings had proceeded smoothly for more than a year, with no significant effects on financial markets. ""
Victor Burek  :  "Minutes: "the staff presented options for substantially slowing the decline in reserves by ending the reduction in asset holdings at some point over the latter half of this year""
Andrew Horowitz  :  "The minutes say they are preparing to let the markets know their intent to stop the runoff later this year"
Rob Clark  :  "She is still talking. Just said they may be buying treasuries later this year."
Matthew Graham  :  "lots more discussion on balance sheet than was shared at announcement time, that's for sure"
Rob Clark  :  "Someone on CNBC said the Fed will stop reducing balance sheet this year."
Matthew Graham  :  "RTRS - FED MINUTES -MEMBERS DECIDED NOT TO EXPRESS A JUDGMENT ON THE BALANCE OF RISKS GIVEN THE DEGREE OF UNCERTAINTY AROUND THE OUTLOOK"
Matthew Graham  :  "the wires being cobbled together are pretty bad (clearly a product of trying to rush something they normally get an hour+ to do)"
Matthew Graham  :  ""FOMC communications, weaker-than-expected data, trade policy uncertainties, the partial federal government shutdown, and concerns about the outlook for corporate earnings" all cited as reasons for market volatility and shifting investor risk sentiment (nice little punch list of things to watch, but that we were already watching)"
Matthew Graham  :  "RTRS - FED MINUTES - PARTICIPANTS SAID SOFTNESS IN CORE AND TOTAL INFLATION A REASON FOR PATIENT APPROACH TO POLICY"
Matthew Graham  :  "RTRS - FED MINUTES -FED MEMBERS NOTED TIGHTENING FINANCIAL CONDITIONS AND UNCERTAINTIES SURROUNDING THE EVOLUTION OF U.S. AND FOREIGN GOVERNMENT POLICIES IN JANUARY MEETING"
Matthew Graham  :  "reminder: no Fed wires today as their offices were closed due to weather. we're all reading this at the same time starting now"

Economic Calendar
Time Event Period Actual Forecast Prior
Wednesday, Feb 20
7:00 MBA Purchase Index w/e 232.7 237.7
7:00 Mortgage Refinance Index w/e 1084.4 1052.4
14:00 FOMC Minutes *
Thursday, Feb 21
8:30 Philly Fed Business Index * Feb 14.0 17.0
8:30 Durable goods (%)* Dec 1.5 0.7
8:30 Nondefense ex-air (%)* Dec 0.2 -0.6
8:30 Jobless Claims (k) w/e 229 239
10:00 Exist. home sales % chg (%)* Jan 0.8 -6.4
10:00 Existing home sales (ml)* Jan 5.00 4.99