The market’s reaction to the publication of the minutes from the last Federal Reserve meeting, which ended on May 1st, was very limited. The US currency slightly gained in value, which, in turn, means the return of the EUR/USD to lows already seen in May.
The minutes confirmed Jerome Powell’s, the Chairman of the FED, statement from the May 1st press conference that the members of the Federal Open Market Committee (FOMC) believe that the recent fall in inflation is "temporary". This is important because it reinforces the view that there is not too much pressure to cut rates at the moment. The minutes does not even mention such a possibility. It is also important because the market is pricing the possibility of interest rate cuts by the end of the year, and the FED in this context sounds neutral and not dovish.
With regard to the situation on the stock exchange, the FED representatives are satisfied with the improvement we have observed recently (compared to the volatility observed in December and January), but this may not be enough to start raising rates again, at least for now.
The FOMC members also do not see too much inflationary pressure from the labour market, so there are no arguments for interest rate hikes so far. However, what is interesting is that economists working for the FED are not so optimistic regarding inflation returning to the Federal Reserve’s target at 2%. If in the next few months it turns out that there are no signs of price increases, their views could be noticed by the FED and affect the rhetoric.
To sum up, at this moment the Federal Reserve has no arguments for rate hikes, nor for their decreases. It is in “wait-and-see” mode. The market could have been slightly disappointed that there was no mention of cuts in the minutes because it priced in the odds of a reduction in interest rates by the end of the year. This could translate into a slight strengthening of the US currency with still small volatility.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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