FOMC minutes lean dovish - AmpGFX

Contrasting with the ECB account, released on Thursday, the FOMC minutes released on Wednesday suggest that the Fed are less confident on the path for policy, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“Following the 13-14 June FOMC meeting, the USD rose and US yields recovered, because the Fed pressed ahead with its third quarterly rate hike in a row, and set out a plan for unwinding its asset holdings. Chair Yellen indicated that the asset unwind was expected this year and could commence relatively soon. And she downplayed the sharp recent fall in US inflation as related to special factors that were likely to be temporary.”

“However, the minutes released Wednesday indicate that the low inflation outcomes were a significant cause for concern.  And there was some reluctance to hike rates once the Fed begins unwinding of its Asset holdings.”

“The USD and yields did not react much to the FOMC minutes released on Wednesday, perhaps because the market is seeing broader global trends towards less monetary policy accommodation and higher yields.”

“The Fed minutes did illustrate that financial stability concerns are playing a bigger role in policy decisions, emboldening the Fed to tighten despite the weaker inflation outcomes.  The Fed was concerned by high asset prices and easing financial conditions (despite their policy tightening to-date).”

“Nevertheless, the minutes suggest that the Fed will be more cautious about rate rises ahead, both because inflation is lower and they are readying to wind-down the balance sheet.”

“All FOMC members thought the asset unwind would begin this year; several thought in a couple of months (September meeting).  Some preferred later.”

“A WSJ article from earlier in the week suggested that the Fed might prefer to start the QE unwind in September, but then delay a decision on further rate rises until December.  This seems to gel with some reticence to hike during the balance sheet unwind.”