|

December FOMC minutes preview: Affirming neutral

  • December vote to maintain fed funds at the 1.75% upper target was unanimous.
  • Chairman Powell comment on inflation gave policy a dovish cast.
  • Next economic projection not due until March FOMC.

The Federal Reserve will release edited minutes of the December 10-11 FOMC meeting on Friday January 3rd at 19:00 GMT, 14:00 EST.

FOMC Minutes

The Fed rate insurance policy taken out in three 0.25% rate cuts from July to October bringing the target range to 1.5% to 1.75% was completed at the fall meeting.  The vote for the current neutral approach was unanimous at the December FOMC, the first agreement of the governors since the June 2019 meeting. Esther George and of Kansas City and Eric Rosengren of Boston had voted against each of the three rate cuts preferring a stable fed funds.

Fed funds 

FXStreet

Chairman Powell’s comment in his news conference after the December meeting that it would require a sustained increase in inflation for the Fed to consider raising the interest rate put a notably dovish imprint on Fed policy. 

The FOMC statement stressed the impartial economic judgement of the board.   “The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.” 

It also noted, as is its wont, the data dependency of its economic analysis.  “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

The studied neutrality of these view is something that the governors will likely use the minutes to reinforce.

US dollar

Currency markets put the dollar on the defensive after Mr. Powell’s inflation remark seemed to indicate a higher standard for a rate increase than implied in the FOMC statement.   

The risks to the US economy that the governors saw in the summer from the US-China trade dispute, the global slowdown in growth and Brexit have receded sufficiently to bring the committee back to non-intervention.

The minutes are not an ideal venue for asserting policy but there may be an effort to counter the impact of Mr. Powell’s inflation comment. If so the dollar will benefit.

Author

Joseph Trevisani

Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.

More from Joseph Trevisani
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD trims gains, nears 1.1700

The EUR/USD pair eases in the American afternoon and approaches the 1.1700 mark. The pair surged earlier in the day after the ECB left interest rates unchanged and upwardly revised inflation and growth figures. The US CPI rose 2.7% YoY in November, nearing Fed’s goal.

GBP/USD steadies below 1.3400 as traders digest BoE policy update and US inflation data

The GBP/USD pair stalls the previous day's pullback from the vicinity of mid-1.3400s and a nearly two-month high, though it struggles to attract meaningful buyers during the Asian session on Friday. Spot prices currently trade around the 1.3380-1.3385 region, up only 0.05% for the day, amid mixed cues.

Gold declines despite Fed rate cut hopes as US inflation cools

Gold price keeps pushing lower below $4,350 in Asian trading hours on Friday. The precious metal stays in the red due to some profit-taking and weak long liquidation from shorter-term futures traders. 

Top Crypto Losers: Pump.fun, Pudgy Penguins, and Hyperliquid extend bearish streak

Pump.fun, Pudgy Penguins, and Hyperliquid lose ground in an extended bearish streak, recording double-digit losses this week. The surprise drop in the November US Consumer Price Index to 2.7%, beating expectations of 3.1%, fueled a rally in the stock market.

Bank of England cuts rates in heavily divided decision

The Bank of England has cut rates to 3.75%, but the decision was more hawkish than expected, leaving market rates higher and sterling slightly stronger. It's a close call whether the Bank cuts again in February or March.

Ripple holds $1.82 support as low retail demand weighs on the token

Ripple (XRP) is trading between a key support at $1.82 and resistance at $2.00 at the time of writing on Thursday, reflecting the lethargic sentiment in the broader cryptocurrency market.