19 Feb 2015
Dovish FOMC Minutes shouldn’t be relied upon – ING
FXStreet (Barcelona) - “The minutes to the Federal Reserve’s January FOMC hinted at less of an appetite for earlier tightening than the market had anticipated, but a lot has since changed…”, quotes James Knightley, Senior Economist at ING, while commenting that risks are still skewed towards an earlier policy tightening.
Key Quotes
“The minutes to the January 28th FOMC meeting appeared more dovish than the actual statement accompanying the “no change” decision.”
“It stated that “many participants observed that a premature increase in rates might damp the apparent solid recovery… undermining progress toward the Committee’s objective of maximum employment and 2 percent inflation”.”
“The minutes went on to say that the plunge in oil prices weren’t an unambiguous positive for the economy with signs of layoffs in the oil and gas industry and reduced investment expenditure in those fields which may partially offset the boost to consumer spending from lower energy prices.”
“Also of significance was the fact that “several participants” noted that core inflation pressures had also eased, not just headline rates. This was regarded by several members “as a concern”.”
“But while this all points to a more dovish Fed it is important to remember that quite a bit has changed. Since that meeting we have seen significant upward revisions to payrolls numbers and an acceleration in wages.”
“Oil prices have also moved higher so the growth and inflation backdrop may be somewhat better than thought at the time of the January FOMC meeting.”
“Also, importantly, we have Fed Chair Janet Yellen testifying on monetary policy and the state of the economy next week. Consequently, we still see the risks as skewed towards earlier policy tightening.”
Key Quotes
“The minutes to the January 28th FOMC meeting appeared more dovish than the actual statement accompanying the “no change” decision.”
“It stated that “many participants observed that a premature increase in rates might damp the apparent solid recovery… undermining progress toward the Committee’s objective of maximum employment and 2 percent inflation”.”
“The minutes went on to say that the plunge in oil prices weren’t an unambiguous positive for the economy with signs of layoffs in the oil and gas industry and reduced investment expenditure in those fields which may partially offset the boost to consumer spending from lower energy prices.”
“Also of significance was the fact that “several participants” noted that core inflation pressures had also eased, not just headline rates. This was regarded by several members “as a concern”.”
“But while this all points to a more dovish Fed it is important to remember that quite a bit has changed. Since that meeting we have seen significant upward revisions to payrolls numbers and an acceleration in wages.”
“Oil prices have also moved higher so the growth and inflation backdrop may be somewhat better than thought at the time of the January FOMC meeting.”
“Also, importantly, we have Fed Chair Janet Yellen testifying on monetary policy and the state of the economy next week. Consequently, we still see the risks as skewed towards earlier policy tightening.”