FOMC Minutes Two Key Takeaways that Will Shape Monetary Policy Moving Forward

Despite a powerful winter storm forcing the Federal Reserve’s Washington DC offices to close, the central bank was still able to release the minutes from its late January meeting.

The release hints at a more balanced outlook than the dovish reading from the meeting itself, with officials emphasizing an increase in downside risks to the economy, as well as generally strong household and labor market data. Beyond the general economic assessment, there were two key takeaways for traders moving forward.

Firstly, the minutes noted that “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.” In other words, the “Powell Put” is alive and well; the Fed appears eager to adjust monetary policy if the central bank sees weakness in the stock market.

The second major takeaway revolves from the following passage: "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." These comments suggest that the Fed will look to remove the term “patient” from its statement before raising interest rates. While Chairman Powell will no doubt look to use his new press-conference-after-every-meeting policy to prepare markets for any changes to policy in advance, traders should also keep a close eye on the wording of the statement moving forward.

Market Reaction

Today’s minutes poured cold water on a market that thought an interest rate cut was ten times more likely than a rate hike this year (though “no change” still seems the odds-on favorite). US stock indices saw an intraday dip back to breakeven, the dollar index has turned back higher on the day, and gold is trading lower after four straight days of gains.

Intraday shifts aside, today’s minutes do not represent a major change in posture from the central bank; the Fed still remains neutral and data-dependent, with no changes likely until the latter half of the year. Therefore, markets may have already seen the majority of their adjustments to the new information already. Moving forward, geopolitical developments around US-China trade, the upcoming North Korea summit, Brexit, and EU auto tariffs will likely drive trade.

Source: TradingView, FOREX.com

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.