What To Expect From FOMC Minutes? Market predictions and reactions
FOMC Preview: From Patience to Reasonable Confidence
Here’s what to look for when the Federal Open Market Committee releases its policy statement along with quarterly economic projections at 2 p.m. Wednesday in Washington, and Federal Reserve Chair Janet Yellen holds a press conference at 2:30 p.m.
-- Guidance change: The Federal Reserve is likely to remove an assurance from the statement that it will be “patient” before beginning to raise interest rates, opening the door to a rate rise as early as June.
Sixty nine percent of the 49 economists polled by Bloomberg News thought the phrase would be replaced by some other form of guidance, and 20 percent said it would be cut and nothing would be put in its place.
If officials replace “patient” with something else, they could use data-dependent language on the need for “reasonable confidence” that inflation would rise toward their 2 percent goal before lifting rates, said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York.
“That would make the statement more neutral,” Dutta said. “If they talk about ‘reasonable confidence’ in the inflation outlook, that means they are stressing inflation more than employment.”
-- Updated interest-rate projections: Fed officials’ new quarterly forecasts will show they expect the benchmark interest rate to rise more slowly, said Roberto Perli, a former associate director of the Fed’s Division of Monetary Affairs.
Median Projections
Perli, now a partner at Cornerstone Macro LLC in Washington, said the median projection for the benchmark federal funds rate at the end of 2015 will probably fall to between 0.75 percent and 1 percent. The median in December was 1.125 percent. “If they come down for this year, they will probably come down across the full forecast horizon,” he said.
In December, the median estimate for the fed funds rate by the end of 2016 was 2.5 percent, and it was 3.625 percent for the end of 2017. The Fed has held the rate near zero since 2008.
-- Dollar strength: In her press conference, Yellen can expect questions about how dollar appreciation will affect the outlook for monetary policy, according to Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
“So far Yellen has kind of downplayed things like the impact of the stronger dollar, or the disinflationary trends in some of the larger economies and some of the disruptions that we could see from them,” Sheehan said. “The trade data is already showing some signs of slowing in exports, so I would really like to know just how confident she is regarding the risks to the outlook.”
Strong Dollar
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, has risen 20 percent since a year ago. U.S. exports fell 1.7 percent in January from a year earlier, marking the biggest decline since October 2009.
Fifty-eight percent of economists polled by Bloomberg News said the stronger dollar makes it more likely the Fed will slow the pace of rate rises, although not delay liftoff. Twenty-five percent said it would make no difference to the timing or pace of tightening.
-- Inflation confidence: Strong jobs data since January has probably increased the “reasonable confidence” of at least some Fed officials that inflation will move back up to its 2 percent target, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Dual Mandate
Unemployment in February fell to 5.5 percent, marking the lowest reading since May 2008. On the other hand, amid falling energy prices and the stronger dollar, the Fed’s preferred gauge of price pressures slowed to a 0.2 percent gain in January and has been below 2 percent since April 2012.
“The thinking is that, A, there are some temporary pass-through effects from oil and the dollar, and B, with unemployment and slack falling, and inflation a lagging indicator, that ultimately the trend would be up,” O’Sullivan said.
Still, Fed officials will probably lower forecasts for consumer prices excluding food and energy this year, he said.
In December, the central tendency of their projections for core inflation at the end of 2015, as measured by the 12-month change in the prices of personal consumption expenditures, was between 1.5 percent and 1.8 percent. In January, the price index of personal consumption expenditures excluding food and energy rose 1.3 percent from a year earlier.
Well we saw : currency war is all about misinformation. And we saw that today at its full power : the art of lying Yellen has shows that she did learn from the Bernanke master
Well we saw : currency war is all about misinformation. And we saw that today at its full power : the art of lying Yellen has shows that she did learn from the Bernanke master
I don't think so. It was algos waiting for trigger. But t is easy to be clever after the battle. They showed that they do not care any more and that they can do whatever they want with forex. Happy days are over
I am trying to imagine how many traders got ripped off with that whipsaw, but the numbers are not small. If they continue like that, they will end up stealing from each other
Dramatic action from Fed sparks market frenzy
Currency markets found themselves in a spin this week following dramatic action from the Fed at their policy meeting. Although they made no change to the base rate of interest, the change in tone of their language and revisions to their economic projections sparked a frenzy.
Having previously described their position as “patiently monitoring conditions”, they removed the patient, and it is now a case of when they will raise their base rate, some analysts think as soon as June. Normally, this would cause the Greenback to strengthen, sending GBPUSD down, but instead we saw the reverse.
The reason for this was the alteration in their future projections. They lowered their 2015 & 2016 expectations of interest rate, suggesting that there would only be one hike this year. We also saw reductions in the inflation and growth targets, further removing pressure for a hike. After the initial reaction to the news from the central bank, markets started to retrace their previous moves, resulting in a 6-cent swing on Cable, and Thursday saw the cross experience its largest daily fall in 5 years.
It wasn’t an entirely silent week from the Bank of England either, as they published the minutes of their most recent meeting which showed that although they voted 9-0 in favour of a rate hold, two members felt that the issue was finely balanced, and the deflationary pressures could lead to a further rate cut.
Thursday saw the Bank of England’s chief economist Andy Haldane expand further that he viewed the threat of deflation as serious threat. He said “The optimal path for interest rates would involve them being cut in the short-run towards zero for around a year, before then roughly following the market yield curve.” On the back of these comments, Sterling came under pressure, losing ground against all the majors.
It has also been a poor week for Euro buyers, after the rate reached a 9-year high last week, we have fallen over four cents, and we cannot be certain whether this is a retracement blip or the start of a new trend in the lead up to the general election. Wednesday’s budget (and that of the Lib-Dems on Thursday) passed without incident as the Chancellor set out his five-year masterplan. It was a slight embarrassment for the opposition that after leader Ed Miliband attacked the budget on Wednesday afternoon, only for shadow-Chancellor Ed Balls to admit on Thursday morning that if elected, he would not reverse any of it.
Looking ahead, Greece is coming back into focus. Things looked ugly as Germany demanded that the promised reforms be enacted, and the Greeks responded by asking Germany to make good on their world war reparations. Other creditors have since joined the brigade calling for action, and this issue will clearly rumble on for some time.
We have plenty of statements from key policymakers, with a member of the Federal Open Market Committee speaking each day, culminating in Chair Janet Yellen on Friday, and from the Eurozone, we hear from ECB President Mario Draghi on Monday afternoon. Given how much the market moved after the Fed meeting last week, comments from all sources will be closely monitored for clues as to future policy, and we can expect to see significant volatility off the back of anything unexpected.
Looking at more fundamental data, we see PMI data from the Eurozone expected at 51.6 for Manufacturing, and 53.9 for Services, suggesting the Eurozone recovery is slow, but existent. More attention will be paid to the UK’s CPI inflation number on Tuesday, set to drop further to around 0.1% from 0.3%. If it does drop into negative territory, we could well see Sterling suffer. US inflation comes out in the afternoon, expected around the same 0.1% monthly.
Thursday sees UK retail sales data, looking for a monthly increase after the previous contraction. Another contraction could be taken as a sign of poor consumer confidence, which could have a negative effect on Sterling. Friday sees attention shift back to the US, when we see the final GDP reading for Q4 2014, expected to show a slight increase on previous estimates around the 2.4% mark.
With the political uncertainty of a general election around the corner, the Pound is fragile. Whilst the economic recovery seems well underway, Sterling remains vulnerable as a currency against the other majors. This is an excellent time to make use of market orders to maximise your buying power, please get in touch with your account manager to look at your options.
If on every time when FED tells that they do not know when are they going to hike rates (or if they are going to hike them at all) happens what happened 3 days ago, that will kill accounts of most human traders. Bernanke (in rare moments of being sincere) told long time ago that rates are not going to be normalized in his lifetime - so what is the whole fuss about?
Fed rate hike reverse: September now more likely
he Federal Reserve's fears that the strong dollar could hurt the U.S. economy are bolstering concerns that a rate hike could be put off until September.
According to minutes of the Fed's March meeting released Wednesday, the dollar's strength was the focus of several committee members.
"Several participants noted that the dollar's further appreciation was likely to restrain...economic growth for a time," according to the minutes.
Lackluster consumer spending and tepid wage growth also made the list of worries at the central bank. Those two things and the strong dollar seem to be giving the Fed pause, though they do not explicitly forecast what they plan to do.
Many experts last year thought the Fed wouldn't raise rates until the second half of 2015. However, good job reports in January and February encouraged the Fed to possibly speed up its rate hike launch date.
The Fed's committee removed the key word "patient" from its statement in March, opening the door for it to raise interest rates in June for the first time since 2006.
But then -- two weeks after the Fed's meeting -- the disappointing March jobs report came. The U.S. only added 126,000 jobs in March, and job gains for January and February were revised down. Some believe March's jobs report was due to the harsh winter weather, but it did raise questions about whether the economy is losing steam. It was the worst month of job gains since the end of 2013
Add on dollar pressure and weak consumer spending, and it now appears a Fed rate hike is likely on hold until September, according to several economists surveyed by CNNMoney.
"The real danger is moving too quickly and undermining an improving, but still fragile recovery," says Robert Denk, chief economist at the National Association of Home Builders. Denk moved his rate hike forecast from June to September.
There is a huge split inside the Federal Reserve
There is a big divide inside the Federal Reserve.
The Minutes from the latest Federal Open Market Committee (FOMC) meeting showed that the Fed is quite split on when and why it will be appropriate to tighten monetary policy with interest rate hikes.
Here's the key passage:
Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar's appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.
And so basically, we've got FOMC members who think it will be best to raise rates in June, and others willing to wait until March 2016.
Although Fed chair Janet Yellen has not said rate increases would necessarily come at a meeting accompanied by a press conference, few expect the Fed will move without markets hearing from Yellen. This thinking leaves the June, September, December meetings in 2015, as well as the March 2016 meeting, as the most likely candidates for the first rate hike.
The Fed is also split on how it will let the market know what is coming when it decides to raise rates.
With regard to communications about the timing of the first increase in the target range for the federal funds rate, two participants thought that the Committee should seek to signal its policy intentions at the meeting before liftoff appeared likely, but two others judged that doing so would be inconsistent with a meeting-by-meeting approach.
In its March statement, the Fed said that it wouldn't raise rates in April, but left the door open for June. Of course, given that it has been so long since the Fed raised rates, many in markets aren't exactly sure what the Fed signaling its intention to raise rates will look like.
The Fed has continually stressed that it will be "data dependent" in looking to raise rates as it seeks to gain maximum flexibility. And so the question will be how much the recent string of economic data — notably the jobs report which saw fewer jobs created in March than expected — impacts the Fed's thinking going forward.
And so as for what the Fed will definitely, probably, maybe be looking for before raising rates?
Participants expressed a range of views about how they would assess the outlook for inflation and when they might deem it appropriate to begin removing policy accommodation. It was noted that there were no simple criteria for such a judgment, and, in particular, that, in a context of progress toward maximum employment and reasonable confidence that inflation will move back to 2 percent over the medium term, the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation.
More on Gundlach - Says Fed may not raise rates this year - and he really likes gold
Earlier headline is here: Gundlach sees 3-4 years of strong dollar trends left
A little more detail now from DoubleLine Capital's Jeffrey Gundlach (via Bloomberg):
- Federal Reserve may not be in a position to raise interest rates this year as the U.S. dollar has strengthened
- "Now we're in this difficult position when the Fed is being guided by the dollar,"
- With the dollar paring its rally, "soon you're going to hear that the Fed has room to raise rates and the dollar will get stronger, and we'll go round and round on this merry-go-round of circular logic."
- Said currency trends tend to persist for a decade, and that he sees three to four more years of a strong U.S. dollar
- "I still believe strongly in the dollar being in a secular bull market"
- Reiterated he is positive on gold
- Expects the price to $1,400 an ounce by the end of the year
Finally somebody told it - there will be no FED rate hike. We are being fooled for almost a year
Finally somebody told it - there will be no FED rate hike. We are being fooled for almost a year
Big Ben's school - Yellen is showing that she is exactly the same as the rest of them
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
You agree to website policy and terms of use
The following are the expectations for today's FOMC minutes from the October meeting as provided by the economists at 15 major banks.
Goldman Sachs: We expect that the language around forward guidance (including "considerable time") and the assessment of "significant underutilization" in the labor market were topics of debate at the October meeting. "Significant underutilization" was removed, and "considerable time" was tempered with the addition of two sentences describing how policy will change with "incoming information". We will be looking for comments on foreign developments, especially after the discussion in the September minutes and lack of mention in the October statement.
Credit Suisse: The latest FOMC statement took some market participants by surprise with its incrementally hawkish tone, especially as its release followed a period of intense, if short-lived, financial market turmoil. But the minutes of the 28-29 October FOMC meeting have the potential to surprise in the other direction if more than a “couple” of policymakers remarked on the risks posed by weakness abroad and a stronger US dollar. We think the USD can continue to outperform in coming weeks, especially against the EUR and JPY.
Deutsche Bank: Don’t expect much more from the coming FOMC minutes on how the Fed will resolve the dual mandate divergence. Assuming we get something consistent with the October 29th Fed statement, the pattern whereby the S&P and USD/JPY have gone up in 5 of the last 5 FOMC minutes days is apt to be repeated. The USD/JPY response fits with our high conviction medium-term call. After 7 of the last 8 FOMC minutes releases, the USD has also been up 10 days later, which is consistent with thoughts that the October FOMC minutes will not interrupt the clear medium-term trend.
Credit Agricole: The October FOMC minutes may offer insight into the balance of opinions among Fed policy makers on progress towards the Fed’s employment and inflation goals and the timing of rate normalization. The meeting minutes will be judged against the FOMC statement that many found less dovish than expected. The discussion of evolving labor market-conditions and the inflation outlook will be of interest, as they are crucial to the timing of rate normalization. One camp likely emphasized labor market improvement while the other remained concerned about continued underperformance on the inflation mandate. Risks of a shortfall in overseas growth were likely discussed in the context of the negative effects on US growth and inflation.
BNP Paribas: We expect the minutes to the Fed’s October 29 meeting to echo the more hawkish tone of the FOMC statement and support the USD. While the usual range of opinions will be on offer in the document and some members will likely have voiced concerns about global developments and softer inflation readings, these views are likely to be balanced by discussion of removing the considerable period language and downplaying oil-related softness in headline inflation.
SocGen: The big event today comes after the London market closes, with the release of US FOMC Minutes. Every nuance will be pored over but the basic question is whether the FOMC will vote for rate hikes as long as the economic recovery continues, or only if signs of inflation appear? Or to put it another way, would the prospect of real GDP growing at a rate of 3% or more in 2015, with unemployment falling even further, be enough to trigger a move even if wage growth and CPI inflation failed to ring a single alarm bell? Our bet is that if the current 3%-plus momentum is maintained into next year rates will rise. The market’s collective position is indecisive.
BTMU: The release of the latest FOMC minutes from their 29th October meeting will be in focus today. The accompanying policy statement from that meeting was viewed as less dovish than expected as the Fed dropped their description that there remains significant underutilisation of labour resources. The Fed also made their low rates commitment more data dependentand remained confident that downside risks to inflation in the medium-term had diminished despite lower energy prices and other factors in the near-term.The minutes mayinclude more discussion regarding the impact of weaker global growth, a stronger US dollar, and lower commodity prices, which when compared to the statement could at least initially be viewed as more dovish weighing on the US dollar. However, the overall tone of the minutes should be broadly consistent with the Fed graduallyshifting towards tightening monetary policy next year which will support a stronger US dollar.
Barclays: In the minutes of the October FOMC meeting, we anticipate that continued progress across a variety of labor market indicators meant the committee was comfortable ending its asset purchase program and signaling that labor resource underutilization was diminishing, despite the downward pressure on headline inflation from lower energy prices. The committee likely weighed the pros and cons surrounding downside risks to global growth and a stronger US dollar, but anticipated that US growth was likely to hold up due to a boost in real income and consumption. We expect participants to look past near-term declines in headline inflation due to lower oil prices and continue to view long-term inflation expectations as remaining stable.
read more