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Talking Points:

  • US Dollar fell after Fed released its minutes from the October meeting
  • Members reinforce data-dependent approach to rates “liftoff” timing
  • Bond yields fell, S&P 500 futures rose after FOMC Minutes release

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The US Dollar declined after the Federal Reserve released minutes from the October 27th to 28th meeting. Diving into the transcript, FOMC members wanted to convey that a December rate hike may be appropriate barring unanticipated shocks. Officials are encouraged by a solid pace of spending and investment. A couple of members were concerned that the wording change might have been too strong in signaling liftoff in December.

While most members agreed that December could be an appropriate time to hike rates, Fed officials said an actual decision would be dependent on data. Some policy makers even said that it is unlikely that liftoff conditions would be met. Others saw reasoning to avoid delaying tightening. Most agreed that risks from abroad are now diminished. Several Fed members said downside threats to the outlook remain.

The Minutes document seemed to fail at bolstering the case for an imminent rate hike. Two-year government bond yields fell in the aftermath of the transcript release. At the same time, S&P 500 futures – a proxy for risk sentiment – rallied. Traders may have cheered the prospect of rates staying near zero for longer as supportive for economic growth at a time when overall global performance appears to be slowing. This can bode well for risk-sensitive assets.

Looking back to October’s Federal Reserve interest rate decision, the central bank left its doors open to the possibility of a rate hike by December. At the same time, members stressed that liftoff is closely tied to how economic data performs in the interim. In general, today’s minutes reinforced that kind of tone, seemingly bringing nothing new to the table. Rather, key upcoming US economic releases may help reveal just how likely December liftoff will be.

US Dollar Declines as FOMC Minutes Bring Nothing New to the Table

original source
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