Kit Juckes, Research Analyst at Societe Generale, explains that the focus of FOMC Minutes was on when/how to start the process of reducing the Fed’s balance sheet.
“There was nothing to change the view that 2017 will see three rate hikes, but if rate hikes happen concurrently with a shrinking Fed balance sheet, that may have an impact on the terminal Funds rate. 1yr rates in 5 years’ time are now priced at 2.55%, 30bp below their highs for the year and the sense is that the Fed isn’t that bothered about a market which prices a lower terminal rate than the ‘dot-plot’ suggests.”
“This matters for two reasons. Firstly, what matters for the dollar now that the rate-hiking cycle is underway is not how many hikes we get this year (or next) but where the Fed’s going in the longer run. And secondly, it’s important for the path of longer-dated Treasury yields. The dollar gets not help from the Fed if we’re collectively tempted to revise terminal Funds down rather than up. And with 10s still flirting furiously with the bottom of their 4-month range, the danger of a break lower’s clear.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.