The FOMC meeting minutes is set to cast some much-needed light on how the Federal Reserve currently view the economy, both inside the United States of America, and indeed globally.
Recent developments in United States economic data releases have opened the possibility for the US central bank to strike a more positive tone towards the economic outlook of the world’s largest economy.
Traders will be on full guard later today in case the FOMC meeting minutes strikes a more hawkish tone, and thus upsets the apple cart in terms of the ongoing market themes, such as rising stock market, US dollar weakness, and rising United States treasury yields.
Market participants are currently pricing in little chance that the FED will raise rates and relinquish QE bond buying any time soon. Should this dynamic change then all hell could break loose on the FX, bond and stock markets.
Scotiabank have revealed that they think that FOMC minutes “May shed further light on the suite of communications offered at the last meeting. One issue to watch for is potential discussion among FOMC participants on the topic of how they might change their policy rate views for lengthy holds if their relatively upbeat forecasts for growth, jobs and inflation were to come to fruition.”
This is certainly interesting given that the US economy has recently released stellar monthly jobs, JOLTS, and ISM numbers, which point to robust growth, and also a roaring jobs market, which could lead to future growth.
While the quality of the jobs being added in the US, and job vacancies being offered is debatable, it certainly opens the FED up to further debate about when to take the foot of the peddle in terms of stimulus.
Potentially, the FED may need to see inflation roaring back before becoming hawkish again, however, the question certainly remains as to how long the FED can ignore such solid US economic data.
In terms of the expected market reaction, failure to reference a specific pick-up in US data points, and a marked change in policy thinking, could cause the current weekly trends to continue.
However, even a slight hawkish tilt to potential policy changes and major market reversals could take place in stocks and the US dollar. And finally, the bond markets’ reaction will be critical.