A “large majority” of Fed officials at the September meeting supported the start of a period of looser monetary policy with a significant interest rate cut of half a percentage point. However, there was broader consensus that this initial step would not commit the Fed to any specific pace of future interest rate cuts, according to newly released minutes from the two-day meeting.
The minutes of the September 17-18 meeting also noted that supporters of a half-point rate cut “note that this adjustment in monetary policy would help align it more closely with recent inflation and labor market indicators.”
However, “some” respondents favored only a quarter-point cut, while “a few others” stated that they could have supported this decision as well.
The minutes stressed that it was “important to convey” that the move “should not be seen as a sign of a more negative economic outlook.”
In addition, the minutes noted that future policy adjustments would depend on incoming data, while also noting that if the economy performed as expected, “a gradual shift toward a more neutral policy stance would likely be appropriate.”
This section below is published as an introduction to the minutes of the FOMC meeting on September 18 at 08:00 GMT.
Minutes from the Federal Reserve’s September 17-18 monetary policy meeting will be published on Wednesday. Details of Jerome Powell and his colleagues’ decision to cut interest rates by 50 basis points take center stage. The US Dollar Index may correct lower on the news, but an upward trajectory is just around the corner.
Minutes of the US Federal Reserve’s September 17-18 monetary policy meeting will be published on Wednesday at 18:00 GMT. Policymakers eased monetary policy for the first time in more than four years and surprised market players with a 50 basis point interest rate cut. The decision sparked speculation that officials were concerned about economic progress and hinted at more aggressive pruning.
Jerome Powell and his colleagues decided to cut interest rates at their September meeting
The Federal Open Market Committee (FOMC) took action after recognizing progress toward the inflation target. “In light of progress on inflation and risk balancing, the Committee decided to reduce the target range for the federal funds rate by half a percentage point to 4-3/4 to 5 percent,” the statement said. However, officials also noted that “job gains have slowed, and the unemployment rate has risen but remains low.”
This announcement was not a complete surprise, given that Powell and his colleagues had somehow anticipated the decision to start cutting interest rates. What came as a surprise was the larger-than-expected cut, given that market participants were mostly expecting a 25 basis point cut, with Fed Governor Michael Bowman only calling for a quarter-point cut instead.
As usual, policymakers reiterated that future decisions will be made meeting by meeting based on macroeconomic data.
Meanwhile, Federal Reserve Chairman Jerome Powell poured cold water on speculation that the big cut came amid concerns about economic progress. In the press conference following the announcement, Powell said he did not see anything in the economy that indicated a possible downturn, adding that the growth rate was strong, inflation was falling, and the labor market “remains at very strong levels.” “.
“We are trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that sometimes comes with low inflation,” Powell added.
As a result, the focus has shifted to recruitment. The tepid data released throughout September sparked speculation that the central bank will deliver another 50 basis point cut when it meets in November. The US Dollar (USD) came under continued selling pressure while stock markets welcomed cheap money.
Things changed in the first days of October. The September nonfarm payrolls (NFP) report from the Bureau of Labor Statistics (BLS) showed that the economy added 254,000 new jobs in the month, while the unemployment rate unexpectedly fell to 4.1% from 4.2% in August. These numbers clearly indicate the presence of a strong labor market, which reduces concerns about it.
As a result, market participants abandoned bets on a 50 basis point cut in November, with odds of a 25 basis point cut currently at around 85%, according to CME FedWatch Toll.
When will the FOMC meeting minutes be released, and how could they affect the US dollar?
The Federal Open Market Committee will release the minutes of its September 17-18 policy meeting at 18:00 GMT on Wednesday. The document may explain the decision and hint at future actions, but at this point, that may be old news. The NFP report has already overshadowed any pre-release speculation about the state of the labor market.
With low inflation, economic growth, and strong employment data, the US appears to be in the right place to allow the Fed to cut interest rates at a slower but steady pace.
The minutes are likely to show that policymakers are willing to cut interest rates further in November, although the extent of that cut will depend on upcoming macroeconomic data.
In fact, the US will publish the September Consumer Price Index (CPI) on Thursday, and the numbers will likely have a broader impact on future Fed decisions, and thus the US dollar, rather than the FOMC meeting minutes.
In general, the more pessimistic the document, the more pressure on the US dollar, while hawkish words would support the US dollar.
From a technical perspective, Valeria Bednarik, Senior Analyst at FXStreet, says: “The US Dollar Index (DXY) looks comfortable above the 102.00 level after approaching the 100.00 level in September. The overall technical stance is bullish, although another move north is needed to confirm Continuous progress in a timely manner.
“From a technical point of view, the DXY may correct towards 102.00 before the announcement, with near-term support in the 101.90 area. However, the daily chart shows that technical indicators are holding well in positive territory, with the Momentum indicator continuing to head strongly north, Reflecting buyers’ interest, at the same time, the DXY has beaten the 20 Simple Moving Average (SMA), which is gaining upward momentum at around 101.20, a key dynamic support area. Finally, the 100 and 200 SMA are holding above 103.00. Limits medium-term upside potential.
“The DXY needs to overcome the 103.00 mark to extend gains at a solid pace, with the next resistance area at around 103.80,” Bednarek adds. “Once it crosses the last scenario, which is unlikely following the FOMC minutes, the index will enter a clearer upward trajectory.” “
Minutes of the Federal Open Market Committee (FOMC) economic indicator meeting
FOMC stands for the Federal Open Market Committee, which organizes 8 meetings a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses risks to its long-term goals of price stability and sustainable economic growth. The minutes of the Federal Open Market Committee (FOMC) meeting are released by the Federal Reserve’s Board of Governors and serve as a clear guide to future US interest rate policy.
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Last version: Wednesday 21 August 2024 at 18:00
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Source: Federal Reserve
