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Thursday,
February 21, 2019 07:03AM / By The Federal Reserve with
additional comments from others
The Federal Reserve Board and the Federal Open Market Committee on Wednesday
released the attached minutes of the Committee meeting held on January 29-30,
2019.
The
minutes for each regularly scheduled meeting of the Committee ordinarily are
made available three weeks after the day of the policy decision and
subsequently are published in the Board's Annual Report.
The
descriptions of economic and financial conditions contained in these minutes
are based solely on the information that was available to the Committee at the
time of the meeting.
FOMC
minutes can be viewed on the Board's website at
https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
Download
Minutes
of the Federal Open Market Committee
January
29-30, 2019: HTML
| PDF
Two Key Takeaways That Will Shape Monetary Policy Moving Forward
By Forex.com
Despite a powerful
winter storm forcing the Federal Reserve’s Washington DC offices to close, the
central bank was still able to release the minutes from its late January
meeting.
The release hints at a
more balanced outlook than the dovish reading from the meeting itself, with
officials emphasizing an increase in downside risks to the economy, as well as
generally strong household and labor market data. Beyond the general economic
assessment, there were two key takeaways for traders moving forward.
Firstly, the minutes
noted that “participants raised a number of questions about market reports that
the Federal Reserve’s balance sheet runoff and associated “quantitative
tightening” had been an important factor contributing to the selloff in equity
markets in the closing months of last year.” In other words, the “Powell Put”
is alive and well; the Fed appears eager to adjust monetary policy if the
central bank sees weakness in the stock market.
The second major
takeaway revolves from the following passage: “Many participants observed that
if uncertainty abated, the Committee would need to reassess the
characterization of monetary policy as “patient” and might then use different
statement language.” These comments suggest that the Fed will look to remove
the term “patient” from its statement before raising interest rates. While
Chairman Powell will no doubt look to use his new
press-conference-after-every-meeting policy to prepare markets for any changes
to policy in advance, traders should also keep a close eye on the wording of
the statement moving forward.
Market Reaction
Today’s minutes poured
cold water on a market that thought an interest rate cut was ten times more
likely than a rate hike this year (though “no change” still seems the odds-on
favorite). US stock indices saw an intraday dip back to breakeven, the dollar
index has turned back higher on the day, and gold is trading lower after four
straight days of gains.
Intraday shifts aside,
today’s minutes do not represent a major change in posture from the central
bank; the Fed still remains neutral and data-dependent, with no changes likely
until the latter half of the year. Therefore, markets may have already seen the
majority of their adjustments to the new information already. Moving forward,
geopolitical developments around US-China trade, the upcoming North Korea
summit, Brexit, and EU auto tariffs will likely drive trade.
1.
There was widespread
agreement for the FOMC to end shrinkage of the $4 trillion balance sheet by the
end of the year. The timetable ends uncertainty over whether shedding assets
would further tighten financial conditions.
2.
The FOMC essentially
said it is throwing out the December forecasts for two rate hikes this year,
and instead “many” on the committee were unsure whether any adjustments would
be needed.
3.
The committee is taking
a patient approach in light of increasing downside risks, notably slowing global
growth and turmoil in financial markets. Some FOMC participants were cutting
their estimates for 2019 U.S. growth.
4.
The Fed was becoming
more dovish in its view on inflation, noting the outlook had become more muted
compared to last year even though the U.S. labor market has been tightening.
5.
U.S. stocks were mixed,
while Treasuries edged lower after release of the minutes, indicating not a big
surprise from investors.
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