The global markets experienced a tight trading range throughout yesterday’s trading, as everyone was waiting for the FOMC Meeting Minutes to give us some clues about the future of the Fed’s policy. However, the Federal Reserve gave us mixed signals; some were good, and other were concerning. In today’s article, we will explain the Federal Reserve meeting minutes, what does it mean for the market and what’s after the meeting minutes.
FOMC Meeting Minutes Headlines
Almost all officials saw upside risks to growth on expectations fiscal policies will be more expansionary under Trump administration. About half of policymakers incorporated those assumptions into forecasts
Many saw increased chance of faster rate hike pace due to higher risk of sizeable undershooting of longer-run normal unemployment rate leading to higher inflation
Policymakers emphasized their considerable uncertainties on timing, size, and composition of legislative and spending changes
Almost all members saw unemployment rate running below longer-term normal level
Generally agreed to continue to closely monitor inflation
What Do We Know?
The Federal Reserve is now considering the new administration’s fiscal policy, which in theory should lead to higher inflation. This is if the administration is able to implement what they are promising. Therefore, the Fed will be monitoring inflation very carefully over the coming months.
Yet, this doesn’t mean that the Fed will be able to raise rates 3 times this year. No one can estimate how many times the Fed will raise rates, especially after last year’s failure to raise rates 4 times. However, what do we know is that the upcoming data will be the driver of the Fed’s policy.
The Fed In Concerned
In the Fed’s FOMC Meeting Minutes, it was mentioned the US Dollar strength, showing some sort of a concern, as rising USD is likely to weight on inflation and growth in the coming months, which may delay the Fed’s next rate hike and would make its job even harder, while stagflation risk will be on the rise.
This is why the Fed may try to stop the USD rally through statements and remarks but not actions anytime soon. This is almost the same policy of the ECB, who tried to stop the Euro rally last year, but failed to do so. In return, they had to take action.
What’s After The Fed?
Since December rate hike is behind us now, traders need to follow up with the upcoming economic releases. In the next few hours and days, there are some key data to follow, including the ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI, Jobless Claims and most importantly December’s Jobs Report which will be released later tomorrow.
USD Index Below 102.0
The Federal Reserve actually succeeded in curbing the USD short term rally, the Index declined all the way below 102.0 down from 103.20’s before the FOMC Meeting Minutes. Yet, there is a long way to go before traders can bet against the US Dollar on the medium term, at least we need to see a weekly close below 100.0 barrier to anticipate a short-term retracement to the downside. Therefore, it's too early to talk about a change in the current trend.