Summary of June FOMC meeting minutes & potential timing of first rate hike

The USD has been in retreat since the release of the Fed meeting minutes.

Key bullets from June FOMC minutes:

• All participants (but one) said it’s appropriate to continue purchasing both agency MBS & longer-term Treasury securities
• Several on FOMC saw need to clearly communicate a downward adjustment in asset purchases
• Many on FOMC said labor gains needed before tapering QE
• About half of FOMC said it would likely be appropriate to end asset purchases late this year
• Many participants anticipated that it likely would be appropriate to continue purchases into 2014
• Several participants said continuing QE would be necessary to achieve a substantial improvement in the labor market
• A few participants wanted to slow or stop its purchases at the June meeting to best foster its dual objectives & limit potential costs of the program
• Several participants worried that higher mortgage/bond rates could slow the economic recovery
• FOMC emphasized the pace, composition & extent of asset purchases would continue to be dependent on incoming economic data
• FOMC notes a clear distinction between the asset purchase program and forward rate guidance
• Committee anticipates a considerable time between the end of asset purchases & an increase in the federal funds rate

A little over 2-hours later Chairman Bernanke made some rather dovish comments:

Fed has moved toward a ‘forecast based’ policy approach – Jobs, inflation & financial stability are equal goals
Fed not on target for employment mandate or inflation target – Signals highly accommodative Fed policy still needed

Ultimately, this is all rather trivial after the release of Friday’s much stronger than expected US June Employment report, which saw a rise of 195K jobs and positive revisions in May: +20K & April: +50K, bringing the 6-month MA to over 200K – This is substantially better than the employment outlook at the time of the June FOMC announcement.

Need more proof? Look no further than the 30-day Fed Fund futures curve. One month ago, pre-June FOMC announcement, the market was priced to see the first rate hike (to 0.50%) by April 2015, however as of today (post-June meeting minutes) the curve has not only steepened, but has also shifted materially to the left. Accordingly, the market now believes the timing of the first Fed rate hike is February 2015.

Simply put it is this date, not when they begin to taper QE, that the Fed will begin to “apply the brakes”

Источник: Forex.com

11.07.2013