Fed Minute Analysis

Date of publication: February 22, 2017 | Author: Tim Clayton

Fed minutes: March US interest rate increase is possible

The latest Federal Reserve minutes did not rule out a move to raise interest rates in March and comments from senior Fed officials will be watched very closely over the next two weeks for hints on whether a hike is likely.

In the Federal Reserve Open Market Committee (FOMC) minutes from the meeting which ended on February 1st  many participants expressed the view that it might be appropriate to raise the Federal Funds rate again fairly soon if forthcoming data on the labour market and inflation was in line with or stronger than expected.

There was a high degree of uncertainty surrounding the outlook with a particular focus on fiscal policy. In this context, the FOMC also expressed doubts surrounding the net effects of any policy changes on the economy and inflation over the medium term.

Many members continued to see only a modest risk that inflation pressures would rise significantly and these members also expressed the view that policymakers would have ample time to respond if signs of rising inflationary pressures did begin to emerge.

The rhetoric overall indicated growing uncertainty and division within the Committee, especially given the unknowns surrounding fiscal policy.  

There was some market disappointment over a lack of more overtly hawkish tone and any specific references to the March meeting which weakened the dollar slightly.  

There was, however, no move to rule out a move at the March 15th meeting which limited the impact. Since the Fed meeting, there has also been stronger than expected inflation data which could push the FOMC towards a short-term policy tightening, especially with overall data still firm.

Fed Governor Powell also stated that March was a ‘live’ meeting and there was only limited net dollar selling after the minutes.

The most likely outcome is that the Fed will not want to sanction a rate hike in March without warning the market. Comments from Fed officials will, therefore, need to be watched very closely over the next 10 days. If they strongly hint over an increase, the message will be very clear.

An important factor, however, is that the next US employment report is not due until March 10th and, at that point, the Fed will be in a blackout period ahead of the meeting and will not be able to make public comments on policy.

Any signal of a March hike would tend to strengthen the dollar while a lack of rhetoric on a potential increase would tend to weaken the currency.

 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

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