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18 Nov 2015
What to look for in the FOMC October meeting minutes to be released today
FXStreet (Mumbai) - The June and September FOMC meetings had not signalled the possibility of a rate hike. Nobody was really expecting the Fed to include an announcement on raising rates in the U.S. in their October statement. The fact that the FOMC October meeting would not be followed by a press conference had further strengthened the belief that no major decision on rate hike would be announced. The October minutes of the FOMC meeting to be released today, two weeks after the meeting will probably include discussion on rate normalization. The Fed feels that the next FOMC meeting scheduled to be held on 15th and 16th December would be a good time to discuss rate hike.
Important discussion centered around removing the phrase “recent global economic and financial developments may restrain economic activity somewhat and are likely to put downward pressure on inflation in the near term” is worth watching out for. The FOMC meeting minutes will likely project greater confidence of the Fed in the global outlook backed by policy easing by the PBoC and a hint of possible extension and expansion the of ECB’s QE programme.
Chair Yellen did not address questions from the financial press post the October meeting leading to a lot of uncertainty on what FOMC members discussed. The market will try and understand where voters stand ahead of the December meeting. Only Richmond Federal Reserve President Jeffrey Lacker voted in dissent of keeping the rate unchanged. Traders are keen to figure out what prompted the Fed to set the December date for the lift-off.
The markets will also try to gauge the number of rate hikes are on tap. As of now the market is predicting 3 rate hikes by the end of 2016. The Fed itself is however expecting 5 hikes. The first Fed rate hike will pose the biggest risk to a stock market rally. The FOMC has signalled that it will take a “balanced approach” to future rate rises. The path of rate rises will likely be gradual in the future, leaving rates below levels viewed as normal for some time.
There has been some communication disconnect in the last few meetings as the FOMC members delivered speeches hawkish in tone but votes against raising rates. the December FOMC meeting might alter this disconnect with the Fed opting to raise record low rates by the year end.
Markets acknowledge that the strong jobs report and the small rise in CPI presented a strong case for a December rate hike. The U.S. economic recovery appears to be back on track. The latest non-farm payroll came in well above expectations. 271,000 new jobs were added in September. Retail sales continued to grow slowly. Inflation posted a 0.2 per cent growth which is the first time the CPI increased in three months. Core inflation stood at 1.9 per cent year over year, very much in tune with Fed’s 2 per cent inflation target.
It will be interesting to see what conditions made the FOMC adopt a hawkish stance even before the strong report on employment. The minutes is expected to throw light on how the FOMC will proceed next year.
Adjustments to the Summary of Economic Projections (SEP) can be expected. Any change in the SEP prior to the December meeting is likely be detailed in the minutes.
Important discussion centered around removing the phrase “recent global economic and financial developments may restrain economic activity somewhat and are likely to put downward pressure on inflation in the near term” is worth watching out for. The FOMC meeting minutes will likely project greater confidence of the Fed in the global outlook backed by policy easing by the PBoC and a hint of possible extension and expansion the of ECB’s QE programme.
Chair Yellen did not address questions from the financial press post the October meeting leading to a lot of uncertainty on what FOMC members discussed. The market will try and understand where voters stand ahead of the December meeting. Only Richmond Federal Reserve President Jeffrey Lacker voted in dissent of keeping the rate unchanged. Traders are keen to figure out what prompted the Fed to set the December date for the lift-off.
The markets will also try to gauge the number of rate hikes are on tap. As of now the market is predicting 3 rate hikes by the end of 2016. The Fed itself is however expecting 5 hikes. The first Fed rate hike will pose the biggest risk to a stock market rally. The FOMC has signalled that it will take a “balanced approach” to future rate rises. The path of rate rises will likely be gradual in the future, leaving rates below levels viewed as normal for some time.
There has been some communication disconnect in the last few meetings as the FOMC members delivered speeches hawkish in tone but votes against raising rates. the December FOMC meeting might alter this disconnect with the Fed opting to raise record low rates by the year end.
Markets acknowledge that the strong jobs report and the small rise in CPI presented a strong case for a December rate hike. The U.S. economic recovery appears to be back on track. The latest non-farm payroll came in well above expectations. 271,000 new jobs were added in September. Retail sales continued to grow slowly. Inflation posted a 0.2 per cent growth which is the first time the CPI increased in three months. Core inflation stood at 1.9 per cent year over year, very much in tune with Fed’s 2 per cent inflation target.
It will be interesting to see what conditions made the FOMC adopt a hawkish stance even before the strong report on employment. The minutes is expected to throw light on how the FOMC will proceed next year.
Adjustments to the Summary of Economic Projections (SEP) can be expected. Any change in the SEP prior to the December meeting is likely be detailed in the minutes.