FOMC Minutes: Dissension in the Ranks Raises Stakes for Powell at Jackson Hole

See why we may see more dissents from Fed officials moving forward...

As my colleague Fiona Cincotta noted earlier today,“[g]iven the outdated nature of the minutes in light of the recent US - Sino trade dispute escalation and global recession fears, the reaction to the minutes could be limited.”

Interestingly, while the international economic outlook has worsened due to new tariffs and an outright contraction in German GDP, US data released since last month’s Fed meeting has generally improved. Since then, we’ve seen a solid (if unspectacular) Non-Farm Payrolls report, a hotter-than-expected CPI report, and a strong retail sales reading. More to the point, Fed speakers in the intervening weeks (Bullard and Daly) haven’t implied any change in their outlooks since last month’s “mid-cycle adjustment.”

The just-released minutes confirmed the Fed’s generally optimistic domestic/pessimistic international outlook. Top headlines from the minutes follow [emphasis mine]:

  • A NUMBER OF FED OFFICIALS STRESSED NEED FOR FED FLEXIBILITY
  • A FEW POLICYMAKERS EXPRESSED CONCERN OF 3M/10Y YIELD CURVE INVERSION
  • SEVERAL SAID UNCERTAINTIES REMAINED ABOUT EFFICACY OF QE
  • SEVERAL FAVORED MAINTAINING RATES UNCHANGED
  • MOST VIEWED A 25 BP CUT AS A … MID-CYCLE ADJUSTMENT
  • A COUPLE POLICYMAKERS WOULD HAVE PREFERRED A 50 BP CUT TO ADDRESS LOW INFLATION
  • THOSE WHO FAVORED CUT POINTED TO DECELERATING ECONOMY, ELEVATED RISKS ON GLOBAL ECONOMY AND INFLATION
  • PARTICIPANTS SAID FORWARD GUIDANCE AND QE MIGHT NOT BE ENOUGH TO ELIMINATE PROTRACTED RISKS AT LOWER BOUND

The divergent viewpoints (“several” favored unchanged rates, “a couple” would have preferred a 50bp cut) suggests that we may continue to see dissents in response to future Fed decisions. Therefore, it will be particularly important to watch comments from central bank’s leadership (Powell and Clarida) for the most accurate signals on future policy.

Market Reaction

To call the market’s reaction to the FOMC minutes lackluster would be an understatement. The US dollar ticked about 5 pips higher against its rivals before reversing and trading about 5 pips below pre-Fed levels as we go to press – as the chart below shows, rates are showing a potential short-term head-and-shoulders topping pattern. Gold prices bumped up a couple bucks to $1506 while major US indices and Treasury yields are essentially unchanged.

All eyes now turn to Fed Chairman Powell’s big speech on "Challenges for Monetary Policy" at Jackson Hole Friday morning.

Source: TradingView, City Index


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.