FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the release of the latest FOMC minutes from their meeting on the 16th December when the Fed raised rates for the first time since June 2006, reinforces gradual tightening expectations.
Key Quotes
“The Fed’s decision to begin raising rates was surprisingly unanimous. However, the accompanying minutes released overnight highlighted that the more dovish voices on the FOMC still remain in place. The minutes revealed that for some members the decision to begin raising interest rates was a “close call”. Those members emphasized the importance of confirming that inflation would rise as projected and of maintaining the credibility of the FOMC’s inflation objective” as “risks attending their inflation forecasts remained considerable”. The ongoing decline in the price of crude oil, strengthening US dollar, and recent financial market volatility are reinforcing market expectations that the pace of tightening in the year ahead will only be very gradual.
However, it was notable that Fed Vice Chair Fischer chose to warn the market yesterday that it is likely underestimating the pace of tightening for this year. He reiterated the view signalled by the Fed’s dot plots that it is likely to raise rates by around four times this year which is “in the ball park”.
The release yesterday of the latest ADP survey and ISM non-manufacturing surveys provided more favourable economic news. The ADP survey, although we have doubts over its accuracy as a leading indicator, has provided some reassurance that employment growth has likely remained solid in December. The payrolls report on Friday is expected to reveal stronger earnings growth as well providing support for the US dollar.”
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