The minutes of the Federal Open Market Committee’s (FOMC) Meeting are released around three weeks following the FOMC Meeting. The document shows detailed reasoning for the previous monetary policy decisions, and it gives clues to investors around the future path of interest rate decisions. A more hawkish stance than expected is usually positive for the currency, and vice versa.
The Federal Reserve has decided to hold interest rates at 5.4%, but it might not stay the same for long. It is expected that the Fed might adhere to raising interest rates again before the end of the year followed by less-than-expected cuts during 2024, since inflation is still persistently above the 2% target. Several Fed officials believe there is a need for one more 0.25% interest-rate increase at the November or December meeting with a median projection of 5.6% by the end of the year, and perhaps two quarter-point cuts during 2024.
The Meeting Minutes suggested that Fed officials emphasized the importance of focusing on how long to hold the policy rate at restrictive levels rather than how to raise it. They were also concerned about the persistent inflation rate despite it starting to fall. All participants also agreed that policy should remain restrictive for some time until inflation moves closer to the 2% target.
Despite the attempts by the Fed to stabilize the economy by increasing interest rates 11 times during the past two years, there are still challenges that could impact the outcome. The risk has become two-sided, and the central bank does not have complete control over it. These headwinds include geopolitical tension around the world.
WTI experienced a significant increase during the past quarter by around 32% as a result of concerns over supply, and specifically increased by around 4% in one day on Monday coming from political tensions beyond the region, and concerns of more upward pressure if Iran was to become involved. Since energy prices account for around 8% of the US CPI, these price hikes could backfire on the Fed’s monetary policy to curb inflation. Still, inflation did show some easing in September from 0.6% to 0.4% MoM, and remaining steady at 3.7% YoY.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.