Tomorrow we have what is likely to be the biggest event for the markets this week. The Fed will release the minutes of their last meeting.

With all the expectations over what the Fed will do at its next meeting, there will be a lot of attention to the details of their last meeting’s discussion.

There is so much commotion over what the Fed will do, that over the weekend a rumor flew around that there was a “special” meeting yesterday to raise rates. In reality, it was a previously scheduled closed-door meeting.

The inflation numbers have been so dramatic lately that traders are on the edge of their seats in anticipation of what the Fed will do.

What the analysts are predicting

The question now isn’t whether the Fed will hike rates at the next meeting, but by how much.

Reuters’ most recent survey shows that 52% of economists believe a 50 basis point hike is coming, and 48% say it will be only 25. The last time the Fed took such drastic action was in 2000 in the midst of the dot-com boom. And it came to an abrupt end a little more than a year later.

The market appears to be pricing in as many as 7 rate hikes this year. In turn, this would leave the funds rate at 1.75%, one of the sharpest tightening cycles in history.

With such a strong consensus that the Fed will tighten, there is an increasing possibility that the market could be disappointed by the tone of the minutes.

Let’s not forget that the meeting happened before the latest inflation figures. Specifically, it followed December’s disappointing NFP, and it was before the GDP figures were out. There were fewer reasons back then for the Fed to hike as aggressively as they might have to now.

It’s down to the vote and the projections

The Fed is likely to be just as wary of the potential consequences of aggressively raising rates in an economy that is still not on firm footing because of the pandemic.

Most importantly, omicron was the major theme in January. And there was no official talk yet of lifting restrictions and mask mandates. So, there are plenty of reasons to suspect that Fed members would have taken a more moderate tone in their deliberations than the market has factored in.

Probably the pivotal point will be what the vote was for increasing the taper. The vote could be overall unanimous. But if there were a significant number of dissenters, it could provide a significant dovish tone. It would mean that the Fed didn’t fully commit to ending the taper sooner, let alone start to raise rates.

Reading the tea leaves

On the other hand, what could turn the discussion more hawkish is if there was any discussion about raising rates in the near term.

If the FOMC was already talking about raising rates at the last session, it would a near certainty that it would happen at the next meeting.

That said, there could be some extra volatility as there is some subjective interpretation of what each member said during the meeting. Analysts will be looking to add up the potential votes in favor of a 50bps hike. And there can be uncertainty in parsing deliberately jargony comments.