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Markets Parse FOMC Minutes with Eyes Toward Jackson Hole

Markets Parse FOMC Minutes with Eyes Toward Jackson Hole

Thomas Westwater,
What's on this page

July FOMC Minutes - Talking Points

  • Trade tensions continue to weigh on members outlooks as Trumps trade war now seen as a likely ongoing factor to consider
  • Easing stance in FED and ECB policy appear to be propping up financial markets globally, even amid heightened volatility
  • Market participants eye Jackson Hole this weekend where Fed Chair Powell will be addressing monetary policy in a speech on Friday morning

Markets remain keenly focused on this weekend’s Economic Symposium in Jackson Hole after the Federal Reserve released the July FOMC Minutes that continue the dovish tone which started to grip the central bank earlier this year. The US Dollar is moving higher after a flat start to the week as dovish bets gyrate around the ambiguity of the Fed’s future monetary policy decisions with spot USDJPY lifting to an intraday high of 106.640 in afternoon trading.

USDJPY (1-MIN Time Frame)

USDJPY Price Chart Reaction to July FOMC Minutes

Undershooting inflation continues to be a key concern among members, as the minutes highlight several members were in favor of a more aggressive cut to the tune of 50 basis points at last month’s meeting. The 2 percent inflation target the Fed aims for has consistently undershot this year with Core PCE currently running at 1.6 percent annualized rate. This was the main concern harped on by the Fed and Chair Powell who called this a ‘mid-cycle adjustment’ as an insurance bet aiming to spur inflation. The market is now pricing a 90.7 percent chance we will see a 25 bps cut for Septembers meeting, with the chance of a 50 bps cut falling further to 9.3% from 11.2% before the FOMC release.

Overnight Swap Pricing Chart (September Fed meeting)

Federal Reserve Interest Rate Cut Probability

Factors that warrant attention in this assessment was the mention of trade tensions which now appear to be viewed as a continuing headwind that will keep weighing negatively on economic outlook. Although, there was mention that the US was weathering Trumps trade war better than most countries. Also, members did note that trade issues will exacerbate global growth worries, which remain to be a prime factor many economist and central banks now attribute to the issue.

Dovish Central Bank Interest Rate Expectations Chart

Chart Prepared by John Kicklighter

Part of that global slowdown is attributable to the Eurozone where the European Central Bank is gearing up for a rate cut and continued asset purchases, it’s first since early 2016. This easing stance in policy across the FED, ECB and other major Central Banks appears to be propping up financial markets globally even amid heightened volatility. The chances of a rate cut among the worlds Central banks has increased dramatically through the year as sentiment from Central Banks remains to be dovish.

--Written by Thomas Westwater, Intern Analyst for

Contact and follow Thomas on Twitter @FxWestwater

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.