FOMC Minutes Reveal Division Over Policy Path

The Federal Reserve is not on the same path when it comes to raising interest rates, the minutes of last month’s Federal Open Market Committee (FOMC) revealed on Wednesday.

Policymakers are struggling to balance concerns over declining inflation with signs of a job market that continues to tighten. As a result, officials were split on whether further rate hikes are warranted.

“Some participants…. [expressed] concerns about the recent decline inflation,” the minutes of the 25-26 July FOMC meeting showed. For these members, the Fed “could afford to be patient under current circumstances.

On the other side of the debate were more hawkish members “worried about risks arising from a labor market that has already reached full employment and was projected to tighten further.” [1]

The labour market continues to be the strongest component of the U.S. recovery. Employers have added more than 200,000 jobs in three of the past four months.[2] The unemployment rate is currently the lowest it has been in more than 16 years.

Policymakers voted to keep policy on hold last month after raising rates in three of the previous five meetings. The Fed’s most recent quarterly projections, which were released in June, showed plans to hike interest rates once more before the end of 2017.

Despite the uncertainty, traders upped their bets that the Fed will tighten policy in December, according to the CME Group FedWatch tool. As of Wednesday, traders assigned a 46.8% probability of a quarter-point increase at the final FOMC meeting of the year. That’s up from 42% on Tuesday.[3]

The minutes failed to deter U.S. stocks from notching their third consecutive gain. The large-cap S&P 500 Index climbed 0.1% to close at 2,468.11. The Dow Jones Industrial Average advanced 0.1% to 22,024.87. The technology-heavy Nasdaq Composite Index was the best performer in percentage terms, rising 0.2% to 6,345.11.

Calm has returned to Wall Street after last week’s volatile selloff. This bodes well for equities over the short term as investors navigate through a historically difficult patch of the year.

In terms of monetary policy, the FOMC will hold its next meeting on 19-20 September. The official rate statement will be accompanied by the central bank’s latest economic projections covering GDP, unemployment and inflation.

[1] Jeff Cox (16 July 2017). “Fed minutes: Central bank split over path of rate hikes.” CNBC.

[2] Trading Economics. United States Non Farm Payrolls.

[3] Eren Sengezer (16 August 2016). “CME Group FedWatch’s December hike probability edged higher after FOMC minutes.” FXStreet.

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Bullet Report : Top 5 Things Happening in the Market Today

Top 5 Things to Know Before You Start Trading

This Wednesday the USD is trading higher while the GBP has declined. Markets react to U.S. and North Korea back and forth threats. 

1 – USD Regains Losses

The US dollar (USD) returned with a vicious comeback yesterday after a lackluster session. It rose to a 1-week high after data showed that US job openings surged to record highs in June. The labor department said job openings reached their highest level since 2000.The dollar index was up 0.34% to 93.745.

2 – GBP Extends Decline

GBP/USD declined further, reaching a low of 1.2952 down from 1.3050. The Job openings data was overall USD supportive as market participants believe now that the Federal Reserve (Fed) has actually got ammunition to continue on its path of raising rates in 2017. The good jobs data came on top of a positive Nonfarm Paryolls (NFP) reading last Friday reinforcing the view that the US is growing its employment sector.

3 – Gold Reacts to Trump’s Threats with North Korea

As mentioned, the USD strengthened following the jobs data, however subsequent give and taken threats from North Korea and President Trump (he said that if N. Korea continues threats, then it will face the US’s “Fire and Fury” in an unprecedented way) caused a whipsaw action in the markets. A perfect example was GOLD, which tumbled from 1265 to 1251, only to rebound back to 1265 shortly after as traders sought its relative safety.

4 – Shares Decline Amidst U.S. And North Korea Conflict

Asian shares and U.S. stock futures slipped on Wednesday and investors sought havens such as U.S. Treasuries, gold and the yen as tensions on the Korean peninsula escalated, with Pyongyang saying it is considering plans to attack Guam. European bourses also looked set to open lower across the board, with DAX futures already down 0.7% in early trade.

5 -Friday’s Inflation Data in Sight

Markets will wait for Friday’s inflation data for further direction US on core Consumer Price Index (CPI) which is expected to show a mild increase to 0.20% in the month of July from 0.1%. any slight increase could cause another round of big moves. Noteworthy is the fact that banks are in holiday mode; any moves can be one directional due to the lack of enough liquidity.

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Bullet Report : Top 5 Things Happening in the Market Today

Top 5 Things to Know Before You Start Trading

This Tuesday trading is quiet with no major data releases, EUR and AUD are higher while German imports are lower. 

1 – Quiet Trading Session

It was a quiet trading session with an absence of major data releases and the European summer holiday season in full swing. Investors were now eyeing U.S. inflation reports later in the week for indications of whether the recovery in the dollar is sustainable in the longer term.

2 – USD Slightly Lower While EUR is Trading Strong

The US dollar (USD) inched down slightly in Asian trading on Tuesday but maintained most of the gains it made on last week’s robust employment data that kept hope alive that the U.S. Federal Reserve could still increase interest rates this year. Meanwhile, Euro (EUR) is trading firm against others so far. In particular, EUR/GBP is also resuming last week’s rally and breaches 0.9050.

3 – AUD Trading Higher than USD

The Australian dollar (AUD) edged higher against USD, while the New Zealand dollar (NZD) held steady after the release of mostly positive economic reports from both Australia and China. Market participants remained cautious ahead of the Reserve Bank of New Zealand’s (RBNZ) monthly policy decision, due later in the week.

4 – German Imports Lower

German imports fell more sharply than exports in June, pushing the trade balance to a 10-month high, data showed on Tuesday. The data are likely to increase criticism of conservative Chancellor Angela Merkel, who is expected to win a fourth term in an election next month, for not boosting investments enough as a way to increase imports and support other countries.

5 -Trump Presidency Persists Over NFP Report

Last Friday’s jobs report showed non-farm payrolls increased by a bigger-than-forecast 209,000 jobs in July, while average hourly earnings increased 0.3 percent to match expectations after rising 0.2 percent in June. While the news was dollar positive, the market doesn’t seem to have bought this story yet. It seems that the political instability caused by Trumps presidency is still hovering over the horizon.

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