US Manufacturing Contracts for a Second Month, Prices Ease

The manager pro tem turned first to a discussion of developments in financial markets. Following several months of tightening, financial conditions eased over the period as investor concerns about global risks edged lower and incoming data showed nascent signs of a moderation in inflationary pressures. Central bank communications signaling a slower pace of policy rate increases appeared to contribute to improved sentiment. Measures of implied volatility across financial markets declined somewhat from the elevated levels observed in October. Consistent with the decline in volatility, model-based measures suggested that a drop in term premiums accounted for much of the decline in Treasury yields over the period. Equity markets moved higher. However, equity market contacts noted risks to growth ahead, and earnings expectations for coming quarters had been marked down. In foreign exchange markets, moderating concerns about the potential for highly elevated U.S. interest rates spurred a depreciation in the foreign exchange value of the dollar. In other market developments, the manager pro tem noted the failure of a prominent crypto-asset exchange. While the spillovers from this situation had been significant among other crypto lenders and exchanges, the tweet at 2:00pm: [DB] Fed Minutes: Participants Welcomed Inflation Drops in October and November, but Concurred It Would Take 'Substantially More Evidence' of Progress to Be Confident of a Sustained Downward Path: RTRS tweet at 2:00pm: FED MINUTES: PARTICIPANTS GENERALLY INDICATED UPSIDE RISKS TO INFLATION REMAINED A KEY FACTOR IN SHAPING POLICY OUTLOOK - https://t.co/wXVagA44VK tweet at 2:01pm: FED OFFICIALS CITED RISK INFLATION COULD BE MORE PERSISTENT A COUPLE OF FED OFFICIALS SAW INFLATION RISKS AS MORE BALANCED FED WARY OF AN `UNWARRANTED' EASING IN FINANCIAL CONDITIONS tweet at 2:01pm: FOMC Minutes: Officials Said Further Rate Increases Would Be Necessary --WSJ FOMC Minutes: Officials Agreed Rate Cuts Shouldn't Happen in 2023 --WSJ FOMC Minutes: Officials Emphasized Need for 'Flexibility and Optionality' in Policy Decisions --WSJ

tweet at 2:04pm: #FOMC Minutes: Several Officials Noted Dot Plot Tracking ‘Notably Above Market’ - Officials Cited Risk Inflation Could Be ‘Modestly Persistent’ - A Couple Of Officials Saw Inflation Risks As More Balanced https://t.co/sMirTwroln tweet at 2:04pm: FOMC Minutes: Risk of Inflation Accelerating Faster Than Anticipated 'Key Factor' in Shaping Policy --WSJ FOMC Minutes: Staff Economic Forecast Not as Weak as at November Meeting --WSJ tweet at 2:05pm: The FOMC minutes provide next to no discussion around how much officials want to raise rates at the February meeting. But officials did shout out their concern that an "unwarranted easing in financial conditions" could "complicate" their inflation fight https://t.co/Xv0f0qaxK5 https://t.co/aQd5UbOt7n