Markets reacted with calm to the FOMC Minutes – Deutsche Bank

FXStreet (Delhi) – Jim Reid, Research Analyst at Deutsche Bank, notes that the markets reacted with some calm to the October FOMC minutes which pointed to a Fed that were still on course to raise rates in December.

Key Quotes

“Specifically, the minutes confirmed that ‘most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labour market, and inflation, these conditions could well be met by the time of the next meeting’. This led to the minutes explaining that ‘members emphasized that this change was intended to convey the sense that, while no decision has been made, it may well become appropriate to initiate the normalization process at the next meeting’.”

“The prospect for gradual rate rises following the first hike was acknowledged also, with the text showing ‘that it would probably be appropriate to remove policy accommodation gradually’ and that ‘it was noted that the beginning of the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow’.”

“Meanwhile, in a sign that views are still not necessarily fully aligned within the Fed camp, some members believed that economic conditions ‘had already been met’ for tightening but that ‘some others, however, judged it unlikely that the information available by the December meeting would warrant’ a hike, highlighting concerns over whether economic growth was robust enough to withstand potential adverse shocks.”

“The comments from Atlanta Fed President Lockhart prior to the minutes suggested that he would be happy to move in December ‘conditioned on no marked deterioration in economic conditions’. Lockhart said that ‘given my reading of current conditions and my outlook views, I believe it will soon be appropriate to begin a new policy phase’. The Richmond Fed’s Lacker also warned of getting behind the curve, while in his first policy speech as the Dallas Fed President, Kaplan aired a somewhat more centrist view, saying that the Fed has been ‘prudent is waiting for more data before taking policy action’ but that ‘accommodative policy does not necessarily mean a zero fed funds rate’.”
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