FOMC meeting minutes signal rate hike ‘fairly soon’ – dollar unimpressed
James Chen, CMT February 22, 2017 9:23 PM
The minutes stated: "many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased."
Playing a major role in the meeting were in-depth discussions of the uncertainties and potential effects of anticipated US fiscal stimulus measures, including tax cuts, decreased regulations, and a boost in spending by the Trump Administration. Fed expectations of greater economic growth and inflationary pressures have increased as a result. At the same time, however, Fed members also discussed concerns that a strong and rising US dollar could pose a threat to growth and to monetary policy action. Additionally, the minutes deferred any decisions on dealing with the Fed’s very substantial $4.5 trillion balance sheet until future meetings.
Some members advocated raising rates at "an upcoming meeting" despite the many uncertainties, in order to provide the Fed with more flexibility going forward. In the end, though, the decision to keep rates unchanged in February was unanimous.
While the FOMC minutes appeared to hint at a potentially more aggressive and hawkish Fed stance, the US dollar reversed earlier gains on Wednesday after the release, falling well into negative territory against some its major currency counterparts. This drop could be due partly to the recently hawkish-leaning Fed having already been priced-in to the strong dollar, but also to the Fed’s strong warnings of uncertainty ahead with regard to fiscal policy and dollar strength. US stocks also fell immediately after the FOMC minutes were released but still remained well-supported just off recent record highs.
Continued speculation over the next Fed meeting in mid-March will be of major importance to US dollar movement in the short-term. Although the dollar fell after Wednesday’s FOMC minutes, it remains very well-supported overall on the potential prospect of more rate hikes this year than previously expected. If Fed members remain as hawkish-leaning as they have been in recent weeks, the dollar should continue to benefit, especially if Trump’s pro-growth stimulus plans soon come into clearer focus.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.