FOMC minutes: Nothing new - Danske Bank

According to analysts from Danske Bank the minutes of the latest FOMC meeting added nothing new. They continue to expect a rate hike in December.

Key Quotes: 

“In our view, there was nothing new of great importance in the FOMC minutes, as we already know the different positions among the FOMC members. This also explains why markets did not react to the minutes. While the most dovish FOMC members (Brainard, Evans and Kashkari) are arguing that the Fed should not hike further this year, as low inflation may not be just transitory due to low inflation expectations and labour market slack, the core FOMC members think it is appropriate to tighten monetary policy further, as above-trend growth tightens the labour market further, which eventually leads to higher wage growth and hence higher inflation; in other words, they still have a strong belief in the Phillips curve. They will likely feel relieved by the latest average hourly earnings figures, which came out much higher than expected in September.”

“It remains our base case that the Fed hikes in December, as the core voting FOMC members put more weight on labour market data than current inflation data, although we agree with the dovish camp that low inflation may not be temporary due to low inflation expectations. It is difficult to say what happens next year, as we do not know who the next Fed chair is and who the Fed nominates for the vacant seats on the Board of Governors. Our base case is right now two hikes. While market pricing for a December hike seems fair, markets still price in too few hikes next year.”

“What we looked for were any discussions on the Fed’s target level for its balance sheet. However, as expected, there was nothing on this, as the Fed likely wants to keep its flexibility adjusting the target along the way. ‘Quantitative tightening’ is new to the Fed, so it likely does not see any benefits from pre-committing.”

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 securities. 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 Forex 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.