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Fed Minutes Offer Light on Dovish Shift, US Dollar Climbs

Fed Minutes Offer Light on Dovish Shift, US Dollar Climbs

Peter Hanks, Strategist

Fed Minutes Talking Points:

  • January FOMC minutes revealed that policymakers voted unanimously to keep rates on hold
  • Discussion around “patience” on rate hikes due to a feeling of uncertainty over how the US-China trade war and US government shutdown would impact near-term growth
  • Read an in-depth breakdown of the most recent FOMC rate decision here

Trade market-moving events like this one with our Trade the News Trading Guide.

Minutes from the Federal Open Market Committee’s January meeting were released to the public Wednesday, offering insight on the central bank’s recent dovish shift. Recent fundamental headwinds like the US-China trade war and the US government shutdown muddied the case for further hikes and in January, policymakers voted unanimously to keep rates at their current 2.25% to 2.50% range. Despite the unanimous vote, uncertainty on the path ahead lingered.

Clarification on the exact pace of future hikes was hotly anticipated. "Following the briefing, participants raised a number of questions about market reports that the Federal Reserve's balance sheet runoff and associated "quantitative tightening" had been an important factor contributing to the selloff in equity markets in the closing months of last year" the minutes highlighted.

Conversely, some participants argued further rate hikes would be appropriate in 2019 if the US economy evolved as expected. A number of policy makers also commented on potential changes in language. "Many participants observed that if uncertainty abated, the Committee would need to reassess the characterization of monetary policy as "patient" and might then use different statement language." The comments highlight the constant threat posed by trade wars and domestic developments on the Fed's policy path.

As for the balance sheet, Fed officials stressed that the FOMC would be flexible in its approach to balance sheet normalization. "The survey results also suggested the respondents anticipated the committee would slow the balance sheet runoff in scenarios that involved a reduction in the target range for the federal funds rate" the Committee said. Further, the minutes revealed that Fed staff gave options for ending balance sheet runoff in the second half of 2019. Almost all officials pressed to halt runoff later this year.

US Dollar (DXY) Price Chart: 1-Minute Timeframe (February 20 2019) (Chart 1)

US Dollar price chart FOMC minutes

The Dollar traded higher following the minutes, up to roughly 96.00 from the 95.80 level pre-release.

Check back for updates as the story develops…

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Crude Oil Price Climbs on Aramco Refinery Repair, Nigerian Cuts

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